A decline in GDP in the second quarter, a cooling job market, and a slowdown in business activity worldwide are fueling recession fears. However, better-than-expected corporate profits and the Fed’s indication of a thinner policy tightening based on economic data restore investor optimism in the market.
Since the recent market rallies may not indicate the end of troubles, many highly priced stocks could still witness significant downsides. Although penny stocks are extremely volatile, buying the ones with fundamental strength could be rewarding in the long run.
Under-$3 stocks VEON Ltd. (VEON) and ARC Document Solutions, Inc. (ARC) have lower valuations and higher profit margins. So, these stocks could be solid additions to your portfolio now. They are rated Strong Buy in our proprietary POWR Ratings system.
VEON Ltd. (VEON)
Based in the Netherlands, VEON is a communications and technology company that offers voice, data, and other telecommunication services through a range of wireless, fixed-line, and broadband internet services for corporations, operators, and consumers, as well as sells equipment and accessories.
It provides mobile telecommunications services under contract and prepaid plans for corporate and consumer segments and value-added services.
As of March 31, 2022, the company had $1.98 billion in cash and cash equivalents. The consensus EPS estimate of $0.39 for fiscal 2022 ending December 31, 2022, indicates a 41.3% year-over-year improvement. Analysts expect VEON’s revenue to be $8.86 billion for the same fiscal year, representing a 13.8% rise from the prior-year period.
The stock’s 2.47x forward EV/EBITDA is 70.3% lower than the 8.30x industry average. In terms of forward Price/Sales, VEON is trading at 0.09x, 93.6% lower than the 1.39x industry average.
Its 32.6% trailing-12-month gross profit margin is 10.5% higher than the 29.5% industry average. The company’s trailing-12-month EBITDA margin of 14% is 8.3% higher than the industry average of 12.9%. The stock closed the last trading session at $0.45.
VEON’s POWR Ratings reflect this promising outlook. It has an overall A rating, which equates to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has an A grade for Value and Quality. Click here to see the additional ratings for VEON’s Stability, Sentiment, Growth, and Momentum.
VEON is ranked #7 of 46 stocks in the A-rated Telecom - Foreign industry.
ARC Document Solutions, Inc. (ARC)
ARC is a reprographics company that designs, builds, and operates printing and technology solutions for various industries. The company also resells printing, imaging, and related equipment primarily to architectural, engineering, and construction firms and provides ancillary services.
It serves IT and procurement departments, project architects, engineers, general contractors, facilities managers, retail, technology, educational, hospitality, and public utilities.
ARC’s net sales for its fiscal 2022 full year ended March 31, 2022, increased 12.6% year-over-year to $69.49 million. The company’s gross profit came in at $22.45 million, indicating a 19.5% rise from the year-ago period. Its income from operations came in at $3.06 billion, up 78.2% from the year-ago period.
ARC’s adjusted net income came in at $1.98 billion, representing a 115% year-over-year improvement. Its adjusted EPS increased 150% year-over-year to $0.05. As of March 31, 2022, the company had $50.37 million in cash and cash equivalents.
Analysts expect the company’s EPS to come in at $0.26 for its fiscal 2022 ending December 31, 2022, representing an 18.2% rise from the prior-year period. The consensus revenue estimate of $286.90 million for the same fiscal year represents a 5.4% year-over-year improvement. Its EPS is expected to grow at a rate of 10% per annum over the next five years.
The stock’s 4.63x trailing-12-month EV/EBITDA is 61.7% lower than the 12.10x industry average. In terms of trailing-12-month Price/Sales, ARC is trading at 0.41x, 69.7% lower than the 1.35x industry average.
Its 32.6% trailing-12-month gross profit margin is 10.5% higher than the 29.5% industry average. The company’s trailing-12-month levered free cash flow margin of 14% is 8.3% higher than the industry average of 12.9%. Over the past week, the stock has gained 4.6% to close the last trading session at $2.70.
ARC’s POWR Ratings reflect its solid prospects. The stock has an overall A rating, equating to Strong Buy in our proprietary rating system.
It has an A grade for Value and Quality and a B for Growth and Sentiment. In addition to the POWR Ratings grades we have just highlighted, one can see ARC’s Momentum and Stability ratings here.
ARC is ranked #2 of 43 stocks in the B-rated Outsourcing - Business Services industry.
VEON shares were unchanged in after-hours trading Friday. Year-to-date, VEON has declined -71.93%, versus a -12.61% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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