Ready to go back to bottom fishing? Any good angler can tell you that there are plenty of good things to eat just waiting at the bottom of the stream, pond or lake. The same concept also applies to stocks – investors can always find quality stocks at the bottom of the market.
Stocks go down there for a multitude of reasons, and the reasons aren’t always related to a fundamental flaw in the company or its stock trading policies. Sometimes it’s an idiosyncratic trading decision, or an overreaction to a related news story, or even just the bad luck of being swept away by a general market downturn.
So how are investors supposed to distinguish between names that are about to get back on their feet and those that should remain in the dumps? That’s what the Wall Street pros are here for.
Using TipRanks’ platform, we’ve identified two battered stocks that analysts believe are gearing up for a rebound. Despite heavy losses in 2022, both tickers have received enough praise from the streets 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 powers our high-end computer interfaces. Synaptics’ product line includes wireless connectivity, video interface ICs, graphics chips, audio DSPs, multimedia processors, touchpad modules, fingerprint sensors, touch controllers, and more. . Synaptics has also developed its proprietary Katana platform, an ultra-low-power AI that acts autonomously on data from audio and visual sensors.
There is no shortage of demand for computer systems – or their interfaces, which has been a boon to Synaptics’ business over the past few years. The company’s revenue and earnings have grown slowly but steadily through 2021 and into 2022, with the most recent quarterly results, for the fourth quarter of fiscal 2022, reaching the highest levels in the past eight quarters. Revenue reached $476.4 million, up 45% year-over-year. The rise in revenue was driven by a solid 87% year-over-year increase in IoT sales.
Strong sales drove strong earnings, and non-GAAP diluted EPS came in at $3.87, a company record — and 20 cents higher than the $3.67 forecast. The company also reported a non-GAAP operating margin of 39.2%.
For the full fiscal year 2022, Synaptics reported total net revenue of $1.74 billion, a 30% increase from the prior year’s total of $1.34 billion. Despite this, the company’s stock price has fallen dramatically, by 61% since the start of the year.
The overall strength of the business niche and ability to generate revenue gains caught the eye of Craig-Hallum 5-Star Analyst Anthony Stoss.
“While the company cited weakness in PC/mobile due to lockdowns in China and political unrest in Europe, continued strength in IoT more than offsets the weakness. As SYNA continues to perform, we we expect the company to exceed its target and potentially post 7%+ growth in FY23 unless there are longer than expected supply constraints…we see SYNA as a class apart among some semiconductor companies,” Stoss said.
Stoss used his comment to back up his buy rating on the stock, and his $180 price target implies a 59% gain for the year ahead. (To see Stoss’ track record, Click here)
Tech companies have no trouble catching the attention of Wall Street analysts, and Synaptics has 8 recent analyst reviews, including 7 buys vs. 2 takes, for a consensus strong buy rating. The shares are trading at $112.98 and the average price target of $185 indicates a margin of appreciation of approximately 64% over the next 12 months. (See Synaptics stock forecast on TipRanks)
Rapid7, the second stock we review, has more than 10,000 customers who rely on the company’s cybersecurity product offerings, including cloud-supported packages for visibility, analytics, and automation. By simplifying complex data sets, Rapid7 enables users to automate routine security tasks, investigate and stop cyberattacks, monitor malicious behavior and reduce system vulnerabilities.
In the recent 2Q22 report, Rapid7 posted total revenue of $167 million, a 32% increase over Q2 a year earlier. Total revenue was driven by a 34% year-over-year increase in product revenue, which accounted for $159 million of the total. Rapid7 reported strong annualized recurring revenue (ARR) of $658 million, up 35% year-on-year, and ARR customer growth of 18%.
While this cybersecurity company’s revenue was growing, profits were negative. Diluted non-GAAP EPS was listed as a loss of 1 cent, compared to earnings of 7 cents in the prior year quarter, and free cash flow fell to a net $5 million in 2Q21 to negative $1.25 million in the current. report.
The mixed results have investors on edge, with shares falling 54% year-to-date.
In his RPD coverage for Piper Sandler, 5-star analyst Rob Owens makes it clear that he thinks investors’ concerns here are overblown.
“All things considered, this is the quarter we would have expected from RPD. The company’s results and subsequent guidance are relatively consistent with the current challenges seen in the space. We believe the tone around the additional margin and the drive to provide more compelling FCF margin going forward were a theme that management delivered.We continue to view RPD as a unique opportunity to play on trends of consolidation in mid-market security spending given its portfolio solid,” Owens said.
To that end, Owens assigns an overweight (i.e. buy) rating to the stock and sets a price target of $90 to show confidence in a 66% year-over-year upside potential. . (To see Owens’ track record, Click here)
Overall, Rapid7 shares have a strong analyst consensus buy rating, showing that Wall Street agrees with Owens’ assessment. The rating is based on 9 purchases and 2 reservations made in the last 3 months. The stock is selling for $54.07 and the mid-price target, at $90, implies about 66% upside potential. (See Rapid7’s stock forecast on TipRanks)
To find great stock trading ideas at attractive valuations, visit TipRanks’ Best Stocks to Buy, a recently launched tool that brings together all of TipRanks’ stock information.
Disclaimer: The views expressed in this article are solely those of the analysts featured. The Content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.