Although the benchmark stock market indexes have rallied over the past month thanks to solid corporate earnings and the passage of a whopping U.S. infrastructure bill, concerns surrounding the resurgence of COVID-19 cases with the emergence of the omicron variant are fostering heightened market volatility. Therefore, we think investing in value stocks could be an ideal strategy now.
While the Fed has already said that it will begin reducing its monthly bond purchases, interest rates have been held at near zero for now. So, the availability of cheap money should keep driving the growth of several companies. Furthermore, the Conference Board expects the U.S. real GDP growth to rise to 5% in the fourth quarter.
Despite performing well over the past few months, shares of Gates Industrial Corporation plc (GTES) and Olympic Steel, Inc. (ZEUS) still look undervalued at their current price levels, considering their earnings growth prospects. In addition, our proprietary POWR Ratings system has rated these stocks A or B for Value and Growth along with an overall Buy rating.
Gates Industrial Corporation plc (GTES)
GTES, in Denver, Colo., manufactures and sells engineered power transmission and fluid power solutions worldwide. It offers synchronous or asynchronous belts, including V-belts, CVT belts, and Micro-V belts. The company provides its products to replacement channel customers and original equipment manufacturers as specified components.
On November 16, GTES and Gogoro announced an expanded exclusive partnership to accelerate sustainable urban transportation. Ivo Jurek, CEO of GTES, said, “Gogoro’s battery swapping platform and robust vehicle ecosystem are unmatched, and this partnership will allow both of us to continue the rapid expansion of electric micromobility.”
GTES’ net sales increased 21.1% year-over-year to $862.40 million in the third quarter, which ended September 30, 2021. The company’s adjusted EBITDA grew 31.4% year-over-year to $183.90 million, while its adjusted net income came in at $92 million, representing a 21.4% year-over-year increase. Also, its adjusted EPS was $0.31, up 19.2% year-over-year.
In terms of forward non-GAAP P/E ratio, GTES’ 12.78x is 39.4% lower than the 21.09x industry average. And in terms of forward P/B, the stock’s 1.59x is 47.2% lower than the 3.14x industry average.
Analysts expect GTES’ EPS and revenue to increase 84.3% and 24.9% year-over-year to $1.29 and $3.49 billion, respectively, in its fiscal 2021. In addition, it surpassed the consensus EPS estimates in three of the trailing four quarters. Also, its EPS is expected to grow at a 30.3% rate per annum over the next five years. The stock has gained 27.9% in price year-to-date.
GTES’ POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary ratings system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
The stock has a B grade for Growth, Value, Momentum, and Quality. Within the Auto Parts industry, GTES is ranked #6 of 66 stocks.
To see the additional POWR Ratings for GTES (Stability and Sentiment), click here.
Olympic Steel, Inc. (ZEUS)
ZEUS processes and distributes metal products internationally. The Bedford Heights, Ohio-based company operates through three product segments: Carbon Flat, Specialty Metals Flat, and Tubular and Pipe. It sells processed carbon and coated flat-rolled sheets, coil and plate products, and fabricated parts. ZEUS also provides various processing services, such as cutting-to-length, slitting, flattening, and sawing, and shearing.
On October 1, 2021, ZEUS announced that it had acquired the assets of Shaw Stainless & Alloy, Inc. Richard T. Marabito, CEO of ZEUS, said, “Continuing to acquire well-run, high-return businesses is a key element of our strategy.”
ZEUS’ net revenues increased 122.9% year-over-year to $668.47 million in the third quarter, which ended September 30, 2021. The company’s adjusted EBITDA grew 1552.8% year-over-year to $70.47 million, while its net income came in at $44.53 million compared to a $1.52 million net loss in the prior-year period. Also, its adjusted EPS was $4.09 compared to a $0.14 loss per share in the year-ago period.
In terms of forward EV/S ratio, ZEUS’ 0.24x is 86.2% lower than the 1.77x industry average. And in terms of forward P/S, the stock’s 0.10x is 92.8% lower than the 1.42x industry average.
For its fiscal year 2021, analysts expect ZEUS’ EPS and revenue to increase 3,860.7% and 83.6% year-over-year to $10.53 and $2.27 billion, respectively. In addition, it surpassed the Street’s EPS estimates in each of the trailing four quarters. Its EPS is expected to grow at a 34.3% rate per annum over the next five years. The stock has gained 59.9% in price year-to-date.
It is no surprise that ZEUS has an overall B rating, which equates to Buy in our POWR Ratings system. The stock has an A grade for Growth and Momentum and a B grade for Value.
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GTES shares were trading at $16.30 per share on Tuesday morning, down $0.02 (-0.12%). Year-to-date, GTES has gained 27.74%, versus a 24.93% 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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