Ready to go bottom fishing again? Any good angler can tell you that there is plenty of good food just waiting at the bottom of the creek, or pond, or lake. The same idea applies to stocks – investors can always find some quality stocks below market lows.
Stocks get there for many reasons, and the reasons don’t always relate to some fundamental flaw in the company or its stock trading policies. Sometimes, it’s some idiosyncratic business move, or an overreaction to a related news story, or even just the bad luck of getting caught up in a general market downturn.
So, how are investors supposed to distinguish between names that are ready to get back on their feet and those that are destined to remain in the dustbin? That’s why Wall Street professionals are here.
Using TipRanks’ platform, we’ve identified two declining stocks that analysts believe are poised for a rebound. Despite massive losses in 2022, the two players have earned enough praise from the Street to earn a consensus “Strong Buy” rating.
Synaptics, Inc. (SYNA)
The first company we’ll look at, Synaptics, lives where man meets machine. This company develops the technology that makes high-tech computer interfaces work. Synaptics’ product line includes wireless connectivity, video interface ICs, graphics chips, audio DSPs, media processors, touchpad modules, fingerprint sensors, touch controllers and more. Synaptics has also developed its proprietary Katana platform, an ultra-low-power artificial intelligence that acts autonomously on data from audio and visual sensors.
There’s no shortage of demand for computer systems – or their interfaces, which has been a boon to Synaptics’ business in recent years. The company’s revenue and earnings rose slowly but steadily through 2021 and 2022, with the most recent quarterly results for the fourth quarter of fiscal 2022 reaching the highest levels in eight quarters. The top line reached $476.4 million, up 45% year-over-year. The revenue gain came from a strong 87% YoY growth in IoT sales.
Strong sales led to strong earnings, and diluted non-GAAP EPS came in at $3.87, a company record – and 20 cents higher than the forecast of $3.67. The company also reported a non-GAAP operating margin of 39.2%.
Looking at the full 2022 fiscal year, Synaptics reported total net revenue of $1.74 billion, a 30% increase from the previous fiscal year’s total of $1.34 billion. Even so, the company’s stock price has fallen dramatically, down 61% year-to-date.
The overall strength in the business position and the ability to generate revenue gains caught the attention of Craig-Hallum 5-star analyst Anthony Stoss.
“While the company cited softness in PC/mobile due to China’s lockdowns and political unrest in Europe, continued strength in IoT more than offsets the weakness. As SYNA continues to execute, we expect the company to hit its target and possibly post 7%+ growth in FY23 with no supply constraints greater than expected… SYNA has already surpassed its previous target of 57% GM and with company to have 60%+ GMs, we see SYNA in a class of its own among select semiconductor companies,” said Stoss.
Stoss used his comment to back his Buy rating on the stock, and his $180 price target suggests a 59% gain over the next year. (To follow Stoss’ history, Click here)
Technology companies have no problem getting attention from Wall Street analysts, and Synaptics has 8 recent analyst reviews, including 7 Buys vs. 2 Holds, for a Strong Buy consensus. Shares trade for $112.98, and the average price target of $185 suggests room for the stock to appreciate ~64% over the next 12 months. (See Synaptics stock forecast at TipRanks)
Rapid7, the second stock we look at, has over 10,000 customers who depend on the company’s cyber product offerings, including cloud-powered packages for visibility, analytics and automation. By simplifying complex data sets, Rapid7 enables users to automate common security tasks, investigate and terminate cyber-attacks, track malicious behavior and reduce system vulnerabilities.
In its recent 2Q22 report, Rapid7 reported total revenue of $167 million, a 32% increase from the previous year’s second quarter. The overall top line was fueled by a 34% year-over-year increase in product revenue, which accounted for $159 million of the total. Rapid7 posted strong annual recurring revenue (ARR) of $658 million, up 35% YoY, and ARR customer growth of 18%.
While this cybersecurity company’s top line was rising, earnings were negative. Diluted non-GAAP EPS was recorded as a loss of 1 cent, compared to a gain of 7 cents in the prior quarter, and free cash flow turned from a net $5 million in 2Q11 to a negative $1.25 million in the current quarter.
The mixed results sent investors into a tailspin, with shares sliding 54% year-to-date.
In RPD’s coverage of Piper Sandler, 5-star analyst Rob Owens makes it clear that he thinks the investor is worrying too much here.
“Of all things, this is the quarter we would expect from RPD. The company’s results and subsequent guidance are relatively consistent with the current challenges seen across the space. We believe the tone around incremental margin and the commitment to delivering a more compelling FCF margin going forward was a management issue that delivered. We continue to view RPD as a unique opportunity to play the trends around security spending consolidation in the mid-market given its strong portfolio,” commented Owens.
To that end, Owens places an Overweight (i.e., Buy) rating on the stock and sets a $90 price target to show his confidence in a 66% one-year upside potential. (To follow Owens’ history, Click here)
Overall, Rapid7 shares have a strong buy rating from the analyst consensus, indicating that Wall Street agrees with Owens’ assessment. Rating is based on 9 purchases and 2 bookings made in the last 3 months. Shares are selling for $54.07 and the average price target, at $90, suggests ~66% upside potential. (See Rapid7 Stock Prediction on TipRanks)
To find good ideas for trading stocks at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that brings together all of TipRanks’ stock information.
Denial of responsibility: The views 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.