Ready to bottom fish again? Any good angler can tell you that there is plenty of good food just waiting at the bottom of the creek, pond or lake. The same concept applies to stocks – investors can always find some quality stocks at the bottom of the market.
Stocks go down for a variety of reasons, and the reasons aren’t always related to a fundamental flaw in the company or its stock trading policies. Sometimes it’s some idiosyncratic business move, or an overreaction to related news, or even just the bad luck of being swept up in a general market downturn.
So how should investors distinguish between names ready to get back on their feet and those that will remain in the dumps? That’s what Wall Street professionals are here for.
Using TipRanks platform, we found two failed stocks that analysts believe are poised for a recovery. Despite the massive losses incurred in 2022, both tickers received 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 our high-end computer interfaces work. Synaptics’ product line includes wireless connectivity, video interface ICs, graphics chips, audio DSP, multimedia processors, touchpad modules, fingerprint sensors, touch controllers, and more. Synaptics also developed its proprietary Katana platform, an ultra-low-power AI 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 over the past few years. The company’s revenue and earnings are growing slowly but steadily in 2021 and into 2022, with the latest quarterly results for Q4 of fiscal 2022 reaching the highest levels in the past eight quarters. The top line reached $476.4 million, up 45% year over year. The increase in revenue was driven by a robust 87% year-over-year increase in IoT sales.
Strong sales led to strong earnings, and non-GAAP diluted 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 fiscal year 2022, Synaptics reported total net revenue of $1.74 billion, a 30% increase from the prior fiscal year’s total of $1.34 billion. However, the company’s share price has fallen dramatically, down 61% since the start of the year.
The overall strength in the business niche and the ability to grow revenue attracted the attention of Craig-Hallum 5-star analyst Anthony Stoss.
“Although the company cited softness in PC/Mobile due to lockdowns in China and political unrest in Europe, continued strength in IoT more than offset the weakness. As SYNA continues to execute, we expect the company to exceed its target and potentially post 7%+ growth in FY23, barring longer-than-expected supply constraints… SYNA has already exceeded its previous target of 57% GM and company sports 60%+ GM, we view SYNA as in a class of its own among select semiconductor companies,” Stoss said.
Stoss used his comments to support his Buy rating on the stock, and his $180 price target suggests a 59% gain over the next year. (To watch Stoss’ record, Press here)
Technology companies have no trouble getting the attention of Wall Street analysts, and Synaptics has 8 recent analyst reviews, including 7 buys vs. 2 holds, for a consensus rating of strong buy. Shares are trading at $112.98, and the average price target of $185 indicates room for ~64% upside in the stock over the next 12 months. (See Synaptics stock forecast at TipRanks)
Quick7 (RPD)
Rapid7, the second stock we look at, boasts more than 10,000 customers who depend on the company’s cybersecurity product offerings, including cloud-enabled visibility, analytics and automation suites. 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 its recent 2Q22 report, Rapid7 reported total revenue of $167 million, a 32% increase over the prior year’s second quarter. The overall top line was driven by a 34% year-over-year increase in product revenue, which made up $159 million of the total. Rapid7 saw strong annual recurring revenue (ARR) of $658 million, up 35% year-over-year, and ARR customer growth of 18%.
While this cybersecurity company’s top line was climbing, revenue was negative. Non-GAAP diluted EPS was reported 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 2Q21 to a negative $1.25 million in the current report.
The mixed results unnerved investors, with shares down 54% year-to-date.
In his RPD coverage of Piper Sandler, a 5-star analyst Rob Owens makes it clear that he thinks the investor’s concerns here are overblown.
“All things considered, this is the quarter we would expect from RPD. The company’s results and subsequent guidance are relatively consistent with the current challenges seen in the space. We believe that the tone around margin growth and the commitment to delivering a more compelling FCF margin going forward has provided theme management. We still view RPD as a unique opportunity to play on the security spending consolidation trends in the mid-market given its strong portfolio,” said Owens.
To that end, Owens places an overweight (i.e., Buy) rating on the stock and sets a price target of $90 to indicate his confidence in the 66% one-year upside potential. (To watch Owens’ record, Press here)
Overall, Rapid7 shares have a Strong Buy rating from the analyst consensus, indicating that Wall Street agrees with Owens’ assessment. The rating is based on 9 buys and 2 holds determined in the last 3 months. Shares are trading at $54.07, and the average price target of $90 suggests ~66% upside potential. (Check out the Rapid7 stock forecast at TipRanks)
To find good stock trading ideas at attractive valuations, visit TipRanks’ The best stocks to buya recently launched tool that brings together all of TipRanks equity insights.
Rebuttal: 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.