Inflation has likely peaked already, as it eased in December for the sixth straight month. This might prompt the Fed to slow down its rate hike aggression rate in 2023. According to CME Group data, there stands a 94.3% probability of the Fed hiking rates by 25 bps in February.

Moreover, despite macro headwinds, consumer sentiments have been improving. According to TransUnion’s new Consumer Pulse Study, more than half (52%) of Americans turned out optimistic about their financial futures over the next 12 months.

Furthermore, experts remain hopeful that the nation will achieve price stability without raising unemployment and possibly avoid a recession.

Federal Reserve Vice Chair Lael Brainard said, “It remains possible that a continued moderation in aggregate demand could facilitate continued easing in the labor market and reduction in inflation without a significant loss of employment.”

Given the backdrop, investors could consider adding quality penny stocks ARC Document Solutions, Inc. (ARC) and Rave Restaurant Group, Inc. (RAVE) to their portfolios in 2023.

ARC Document Solutions, Inc. (ARC)

Digital printing company ARC provides digital printing and document-related services in the United States. It provides managed print services, cloud-based document management software, and other digital hosting services.

ARC’s trailing-12-month EV/Sales of 0.71x is 59.6% lower than the industry average of 1.77x, while its trailing-12-month Price/Sales of 0.51x is 62.7% lower than the industry average of 1.38x.

Its trailing-12-month gross profit margin of 33.20% is 14.1% higher than the industry average of 29.09%. Also, its trailing-12-month EBITDA margin of 13.68% is 3.1% higher than the industry average of 13.27%.

ARC’s net sales increased marginally year-over-year to $73.10 million for the third quarter that ended September 30, 2022. Its adjusted net income came in at $3.70 million, up 15.6% year-over-year, while its EPS came in at $0.09, representing an increase of 12.5% year-over-year.

Over the past month, the stock has gained 25.5% to close the last trading session at $3.49.

ARC’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to a Strong Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its weighting.

Also, the stock has an A grade for Value, Sentiment, and Quality. Within the B-rated Outsourcing – Business Services industry, it is ranked first among 42 stocks. Click here for the additional POWR Ratings for Growth, Momentum, and Stability for ARC.

Rave Restaurant Group, Inc. (RAVE)

RAVE and its subsidiaries operate and franchise pizza buffets, delivery/carry-out (Delco), and express restaurants under the Pizza Inn trademark in the United States and internationally. It operates through three segments: Pizza Inn Franchising; Pie Five Franchising; and Company-Owned Restaurants.

RAVE’s trailing-12-month P/E of 3.74x is 74.3% lower than the industry average of 14.56x. Its trailing-12-month EV/EBIT of 12.22x is 9.1% lower than the industry average of 13.43x.

RAVE’s trailing-12-month gross profit margin of 68.58% is 92.3% higher than the industry average of 35.58%, while its trailing-12-month EBITDA margin of 18.08% is 63% higher than the industry average of 11.09%.

RAVE’s revenues came in at $3 million for the quarter ended September 25, 2022, up 17.7% year-over-year. Its net income increased 7.7% year-over-year to $307,000. Moreover, its adjusted EBITDA came in at $542,000, representing an increase of 25.8%.

Analysts expect RAVE’s EPS to rise 10% per annum for the next five years. Over the past year, RAVE has gained 73.5% to close the last trading session at $1.70.

RAVE’s overall A rating translates to a Strong Buy in our proprietary rating system.

RAVE also has an A grade for Quality and a B for Value and Sentiment. Within the B-rated Restaurants industry, it is ranked #3 out of 46 stocks. Get additional POWR Ratings for Growth, Momentum, and Stability for RAVE here.

ARC shares were trading at $3.47 per share on Tuesday afternoon, down $0.02 (-0.57%). Year-to-date, ARC has gained 18.43%, versus a 4.67% rise in the benchmark S&P 500 index during the same period.

About the Author: Riddhima Chakraborty

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries. More...

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