With rising interest rates and the possibility of a recession, the stock market will likely stay volatile in the near term. So, it could be wise to add quality growth stocks EMCOR Group, Inc. (EME), EnerSys (ENS), and Electromed, Inc. (ELMD).
The Commerce Department data shows that the core personal consumption expenditures price index climbed 0.4% in April and 4.7% year-on-year, indicating that inflation continues to be sticky. Despite the high inflation rate, consumer expenditure climbed by 0.8% in the month, while personal income increased by 0.4%.
Amid the inflationary pressures, the odds of the Federal Reserve lifting interest rates in June are rising.
Moreover, according to the New York Fed’s recession probability indicator, there is a 68.2% likelihood of a U.S. recession occurring during the next 12 months. Rising interest rates, high inflation, an inverted yield curve, and an unexpected banking crisis are indicative of an incoming downturn.
However, investors’ interest in growth stocks is evident from the Vanguard Growth ETF’s (VUG) 16.1% returns over the past six months.
Given the backdrop, strong growth stocks could be ideal investments for the future. Therefore, let us look deeper into the fundamentals of the mentioned stocks.
EMCOR Group, Inc. (EME)
EME provides electrical and mechanical construction, facilities management, and maintenance services for various systems, including electrical power, energy solutions, instrumentation, communication, HVAC, fire protection, plumbing, water treatment, and steel fabrication.
EME’s forward EV/Sales multiple of 0.68 is 57.4% lower than the industry average of 1.60. Its forward Price/Sales multiple of 0.66 is 47.9% lower than the industry average of 1.27.
EME’s trailing-12-month ROTC of 14.44% is 112.1% higher than the industry average of 6.81%. Its trailing-12-month asset turnover ratio of 2.09x is 162.1% higher than the industry average of 0.80x.
EME’s total revenue increased 11.5% year-over-year to $2.89 billion for the fiscal first quarter that ended March 31, 2023. Its gross profit increased 23.7% from the year-ago value to $436.06 million. Moreover, the company’s net income increased 51.9% year-over-year to $111.47 million, while EPS came in at $2.32, up 66.9% year-over-year.
EME’s revenue grew at a CAGR of 6.9% over the past three years. In addition, its net income grew at a CAGR of 10.6% over the past three years.
The consensus revenue estimate of $12.24 billion for the year ending December 2023 represents a 10.5% increase year-over-year. Its EPS is expected to grow 21.1% year-over-year to $9.81 for the same period. It surpassed EPS estimates in all four trailing quarters. EME’s shares have gained 61.3% over the past year to close the last trading session at $171.02.
EME’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
EME has a B for Growth, Sentiment, and Quality. It is ranked #5 out of 80 stocks in the B-rated Industrial – Services industry. Click here for the additional POWR Ratings for Momentum, Stability, and Value for EME.
ENS provides various stored energy solutions for industrial applications worldwide. It operates in three segments: Energy system; Motive power, and Speciality.
ENS’ forward EV/EBIT of 12.02x is 17.3% lower than the industry average of 14.53x. Its forward Price/Sales multiple of 1.03 is 19.6% lower than the industry average of 1.27.
ENS’ trailing-12-month levered FCF margin of 6.03% is 16.2% higher than the industry average of 5.20%. Its trailing-12-month asset turnover ratio of 1.01x is 26.4% higher than the industry average of 0.80x.
ENS’s net sales increased 9.1% year-over-year to $989.90 million for the fiscal 2022 fourth quarter that ended March 31, 2023. Its non-GAAP EBITDA came in at $118.20, up 34.6% year-over-year. Its non-GAAP operating profit came in at $107.10 million, increased by 60.3% year-over-year. Also, its non-GAAP EPS came in at $1.82, up 51.7% year-over-year.
ENS’ revenue grew at a CAGR of 6.3% over the past three years. In addition, its EBIT at a CAGR of 5.6% over the past three years.
Analysts expect ENS’ revenue to increase 5.9% year-over-year to $3.93 billion for fiscal year ending March 2024. Its EPS is expected to grow 42.8% year-over-year to $7.62 for the same period. It surpassed EPS estimates in all four trailing quarters. Over the past nine months the stock has gained 53.1% to close its last trading session at $99.98.
It’s no surprise that ENS has an overall A rating, equating to a Strong Buy in our POWR Ratings system. It has an A grade for Growth and Sentiment and a B for Stability, Value, and Quality. It is ranked first among 91 stocks in the B-rated Industrial – Equipment industry.
Beyond what is stated above, we’ve also rated ENS for Momentum. Get all ENS ratings here.
Electromed, Inc. (ELMD)
ELMD develops, manufactures, markets, and sells airway clearance therapy and related products that apply high-frequency chest wall oscillation (HFCWO) therapy in pulmonary care for patients of various ages in the United States and internationally.
ELMD’s forward EV/Sales multiple of 2.05 is 43.3% lower than the industry average of 3.61. Its forward Price/Sales multiple of 2.19 is 48.6% lower than the industry average of 4.26.
ELMD’s trailing-12-month EBITDA margin of 7.84% is 280.3% higher than the industry average of 2.06%. Its trailing-12-month gross profit margin of 74.77% is 55.8% higher than the industry average of 34.1%.
ELMD’s net revenue increased 19% year-over-year to $12.07 million in the fiscal third quarter that ended March 31, 2023. The company’s net income and EPS came in at $1.08 million and $0.12, up 66.7% and 71.4% year-over-year, respectively, in the same period.
ELMD’s revenue grew at a CAGR of 10.2% over the past three years. In addition, its total assets grew at a CAGR of 9.1% over the past three years.
Street expects ELMD’s revenue to increase 12.6% year-over-year to $46.90 million for the year ending June 2023. Its EPS is expected to increase 30.8% year-over-year to $0.34 for the same period. The stock has gained 23.7% over the past six months to close the last trading session at $11.96.
ELMD’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It is ranked #9 out of 140 stocks in the Medical – Devices & Equipment industry. It has an A grade for Sentiment and a B for Growth, Value, and Stability. To see additional ELMD’s rating for Momentum and Quality, click here.
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EME shares were trading at $165.56 per share on Wednesday afternoon, down $5.46 (-3.19%). Year-to-date, EME has gained 12.02%, versus a 9.50% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions. More...
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