Amid worries of aggressive interest rate hikes by the Federal Reserve, surging inflation, and slowing economic growth, the stock markets have experienced a relentless sell-off recently. The Nasdaq Composite is in bear market territory, down 28.8% from its high, while the S&P 500 and the Dow Jones Industrial Average have lost 16.6% and 12.2% year-to-date, respectively.
However, the market correction has led to several quality stocks currently trading at significant discounts. According to Morningstar’s measures, small-cap stocks began May about 21% undervalued. Moreover, David Kelly, the chief global strategist at J.P. Morgan Asset Management, said small-cap stocks could do well as he thinks the economy can avoid a recession.
Given this backdrop, it could be wise to bet on quality small-cap stocks Atlanticus Holdings Corporation (ATLC), Cognyte Software Ltd. (CGNT), and Revlon, Inc. (REV), which are down more than 50% this year but could stage a turnaround once the market stabilizes.
Atlanticus Holdings Corporation (ATLC)
Operating through two segments — Credit and Other Investments and Auto Finance — ATLC provides credit and related financial services and products. Its Credit and Other Investments segment originate a range of consumer loan products, while its Auto Finance segment purchases and services loans secured by automobiles. It has a market capitalization of $530.17 million.
On May 10, 2022, Jeff Howard, ATLC’s President, and CEO, said, “Our technology, 25 years of data aggregation, diversity of product offerings and marketing channels, and history of managing through economic cycles provide for a truly differentiated platform from which to continue our growth.”
ATLC’s total revenues increased 59.7% year-over-year to $229.80 million in the fiscal first quarter, which ended March 31, 2022. Its net income came in at $44.76 million compared to $44.03 million in the prior-year quarter. Also, its EPS came in at $1.96 compared to $1.91 in the year-ago period.
Analysts expect ATLC’s EPS to increase 13.9% year-over-year to $7.15 in fiscal 2023. It surpassed Street EPS estimates in three of the trailing four quarters. The company’s revenue is expected to increase 43.9% year-over-year to $1.08 billion in fiscal 2022. The stock has declined 50.7% year-to-date to close Friday’s trading session at $35.16.
ATLC’s POWR Ratings reflect solid prospects. The company has an overall rating of B, which translates to a Buy in our proprietary rating system. In addition, it has an A grade for Quality and a B grade for Value.
Cognyte Software Ltd. (CGNT)
Headquartered in Herzliya, Israel, CGNT provides investigative analytics software to governments and enterprises worldwide and has a market capitalization of $502.12 million. It’s Actionable Intelligence for a Safer World, an open software designed to help governments and enterprises accelerate and enhance the effectiveness of investigations.
On April 5, 2022, CGNT’s CEO Elad Sharon said, “The market’s fundamentals have not changed. Security threats are increasing, and governments are seeking innovative analytical solutions. We are a market leader with a long history of growth and innovation and will continue to help our customers address their evolving security challenges.”
CGNT’s revenues increased 6.9% year-over-year to $474.04 million in the fiscal fourth quarter, which ended January 31, 2022. The company’s gross profit grew 9.9% year-over-year to $341.64 million. Also, its total assets increased 5.7% from the same period last year to $664.61 million.
CGNT’s revenue is expected to increase 4.2% year-over-year to $494.17 million in fiscal 2024. In addition, CGNT surpassed the consensus EPS estimates in three of the trailing four quarters. The stock has declined 52.2% year-to-date to close Friday’s trading session at $7.49.
CGNT’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to a Buy in our proprietary rating system.
It has an A grade for Growth and a B grade for Value. We also have graded CGNT for Momentum, Sentiment, Quality, and Stability. Click here to access all of CGNT’s ratings. CGNT is ranked #30 out of 156 stocks in the Software – Application industry.
Revlon, Inc. (REV)
With a market capitalization of $218.16 million, REV develops, manufactures, markets, distributes, and sells beauty and personal care products worldwide. The company operates through four segments: Revlon; Elizabeth Arden; Portfolio; and Fragrances. It sells its products through a sales force, representatives, independent distributors, mass and prestige retail, e-commerce sites, department stores, and specialty cosmetics stores.
On April 21, 2022, REV announced executing two strategic activations with ACTV8me, an interactive ad tech solutions platform. Martine Williamson, CMO of REV, said, “Being the first global beauty company to leverage ACTV8me’s technology speaks to Revlon’s agility as we continue to invest in digital solutions to address changing consumer behavior and connect with customers on a deeper level.”
REV’s net sales increased 7.8% year-over-year to $479.60 million in the fiscal first quarter, which ended March 31, 2022. The company’s adjusted operating income grew 1,511.1% year-over-year to $23.70 million. Also, its adjusted EBITDA came in at $58.40 million, representing a 52.9% year-over-year increase.
For the quarter ending September 30, 2022, analysts expect REV’s EPS and revenue to increase 8.2% and 5% year-over-year, respectively. In addition, it surpassed the consensus EPS estimates in three of the trailing four quarters. The stock has declined 63.8% year-to-date to close Friday’s trading session at $4.10.
It’s no surprise that REV has an overall B rating, which equates to a Buy in our POWR Rating system. The stock also has a B grade for Value and Quality.
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ATLC shares were unchanged in after-hours trading Monday. Year-to-date, ATLC has declined -50.64%, versus a -16.17% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...
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