Stock Analysis & Ideas

These 2 Beaten-Down Stocks Offer an Attractive Buying Opportunity, Say Analysts

Down doesn’t mean out. When a stock takes a tumble, investors sometimes jump the gun and assume that the name has reached the end of the line. Sure, a significant share price decline should sound the alarm bells, as it could indicate underlying problems with the business or insurmountable headwinds.

However, there’s another side to the story. These falls could reflect temporary challenges that can ultimately be overcome, with the lower prices presenting an opportunity to get in on the action before the stock takes back off on an upward trajectory.

So, how are investors supposed to distinguish between the names poised to get back on their feet and those set to remain down in the dumps? That’s what the pros on Wall Street are here for.

Using TipRanks’ database, we pinpointed two beaten-down stocks the analysts believe are gearing up for a rebound. Despite the hefty losses incurred so far in 2022, both tickers have scored enough praise from the Street to earn a Strong or Moderate Buy consensus rating. Not to mention some strong upside potential is at play here.

Yeti Holdings (YETI)

In recent years, the state of Texas has become something of an economic engine in the US, accounting for large portions of economic growth. The first stock on our short list today, Yeti, is based in Austin, the Texas capital; it was founded in 2006 by pair of Texan brothers. The company is known for its outdoor gear, lines of insulated coolers, drinking cups, and bags, as well as outdoor apparel and even rugged dog bowls and beds. Yeti’s products have found a devoted following among campers, hunters, and fishers, and are available both online and through a network of brick-and-mortar stores.

At first glance, it’s fair to wonder why Yeti’s stock is down 50% from this past November. The company saw a top line of $443.1 million in the last reported quarter, 4Q21; this was a gain of 18% year-over-year. Adjusted income per diluted share grew 17% y/y, to reach 87 cents.

On the negative side, however, investors couldn’t fail to note that the company’s earnings forecast for 2022 came in well below expectations. The Street had been looking for guidance of ~$2.94 per share; what the company gave was a range of $2.82 to $2.86.

Looking at Yeti for investment firm Berenberg, analyst Rudy Yang points out both the company’s strong quarter and its downbeat guidance – and then comes down squarely for the bulls on this one, writing: “We find the company’s recent de-rating to be unwarranted, as fears over mean reversion and temporary margin headwinds have overshadowed Yeti’s solid fundamentals and robust growth trajectory. As a result, we believe shares now offer an attractive buying opportunity, and we encourage investors to buy Yeti stock.”

To this end, Yang rates Yeti a Buy, while his $92 price target indicates potential for ~71% upside in the coming year. (To watch Yang’s track record click here)

Overall, the Wall Street analysts are lining up behind Yang. The stock has 10 recent analyst reviews on record, breaking down 9 to 1 in favor of Buy over Hold and giving the stock a Strong Buy consensus rating. Yeti is selling for $53.93, and its average price target of $94.10 suggests a further upside of ~74% over the next 12 months. (See Yeti stock forecast on TipRanks)

RH (RH)

For the second stock on our list, we’ll shift gears and look at RH, a company in the luxury home furnishing niche. RH uses a combination of showplace gallery stores and direct-to-consumer online sales, and markets its products toward well-heeled clients purchasing homes in the >$1 million range. RH shares peaked last August; it is down by more than half since then.

RH issued its 4Q21 and full year results this past March 29. The top line came in at $903 million, a Q4 record for the company, and up 11% year-over-year. On the negative side, the figure missed the forecast of $931 million. EPS, however, came in at $5.66, up 12% y/y and beating the $5.58 estimates.

The real problem here came with the 2022 outlook. RH management guided toward full-year revenue growth in the range of 5% to 7%; the analysts had been hoping for a more robust 10% guidance figure.

We should consider these figures in light of recent events. RH faces generalized pressures from a combination of headwinds, including rising fuel prices, continued supply chain problems, and the war in Ukraine which is exacerbating both. The company is something of a luxury brand, and its customer base has money – but those customers are impacted by rising inflation and a tighter credit regime.

Even with all of this, analyst Jonathan Matuszewski of Jefferies sees a positive outlook for RH. He writes of the stock, “We think a moderation in luxury real estate is baked into shares, and March data suggests >$1M home sales aren’t ‘doomed.’ With RH trading closer to aspirational brands vs. true luxury brands, we see minimal downside, and investors should feel comforted by its unmatched pricing power across Consumer Discretionary.” On an upbeat note, Matuszewski adds, “RH’s strategy of higher price points, fewer customers, and bigger orders provides insulation.”

The analyst uses these comments to support a Buy rating here, and he sets a $560 price target that implies a 12-month upside of ~62%. (To watch Matuszewski’s track record, click here)

The Jefferies view represents the bulls on RH; overall, the stock gets a Moderate Buy consensus rating, based on 10 Buys, 3 Holds, and 1 Sell. The shares are priced at $346.32 and their $499.93 average price target suggests an upside of 44% from that level. (See RH stock forecast on TipRanks)

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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