Yesterday’s data release showed a moderate increase in U.S. supplier prices. The producer-price index rose 8% for October, declining from the high of 11.7% in March. Moreover, the consumer price index for October declined slightly. These are undoubtedly signs of slowing inflation.
Despite the inflation cooling more than expected in October, the Federal Reserve might keep raising interest rates to combat inflation, which is still hovering around an uncomfortably high level. The Fed officials are on track to approve a 50 basis-point rate hike next month.
The increasing interest rate environment should bode well for financial companies, given the positive correlation between their revenues and interest rates. Investors’ interest in the financial sector is evident from the Financial Select Sector SPDR ETF’s (XLF) 11.9% gains over the past month.
Given the backdrop, investing in the fundamentally solid financial stock Forrester Research Inc. (FORR) could be wise. However, Marathon Digital Holdings, Inc. (MARA) is best avoided now, given its fundamental weakness, financial underperformance, and existential issues calling the viability of its core business into question.
Stock to Buy:
Forrester Research Inc. (FORR)
FORR is an independent research and advisory services firm that sells its products and services through a direct sales force in various locations in the United States, Europe, the United Kingdom, Canada, the Asia Pacific, and internationally. The company operates through three segments: Research; Consulting; and Events.
According to FORR Chairman and CEO George Colony, the company is on track to have one-third of its CV in the Forrester Decisions platform by year-end, and it remains focused on creating shareholder value for the long term.
For the fiscal 2022 third quarter ended September 30, 2022, FORR’s revenue increased 8.1% year-over-year to $127.68 million. The company’s adjusted income from operations grew 24.5% from the year-ago value to $15.81 million. Its adjusted net income rose 38% from the year-ago quarter to $10.90 million, while its adjusted EPS came in at $0.57, up 39% year-over-year.
Analysts expect FORR’s revenue for the fiscal year 2022 to grow 9.2% year-over-year to $539.61 million, while the company’s EPS is expected to grow 12.4% from the year-ago value to $2.35. The company’s revenue and EPS for the next year are also expected to rise 5.6% and 2% year-over-year, respectively.
The company has an impressive earnings surprise history since it has surpassed the consensus EPS estimates in each of the trailing four quarters.
The stock has plunged 11.7% over the past month to close the last trading session at $34.84. In terms of the forward Price/Earnings, it is trading at 14.45x, 15.7% lower than the industry average of 17.14x.
FORR’s POWR Ratings reflect this promising outlook. The company has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
FORR is also rated an A for Quality and a B for Value and Sentiment. As a result, it tops the list of 107 stocks in the Financial Services (Enterprise) industry.
Click here to see additional POWR Ratings for FORR’s Growth, Momentum, and Stability.
Stock to Avoid:
Marathon Digital Holdings, Inc. (MARA)
MARA is a digital asset company that focuses on the blockchain ecosystem and the generation of digital assets. The company mines cryptocurrencies and holds bitcoins in an investment fund.
MARA’s revenues for the fiscal 2022 third quarter ended September 30 decreased 75.5% year-over-year to $12.69 million, led by reduced production and bitcoin prices. During the same period, the company’s operating loss widened by 107.9% year-over-year to $46.69 million. Its adjusted EBITDA came in at negative $8.70 million, compared to $78.78 million in the previous-year period.
Furthermore, the company’s quarterly net loss deteriorated by 240.2% year-over-year to $75.42 million, while its loss per share worsened by 195.5% year-over-year to $0.65.
Analysts expect MARA’s revenue and loss per share for fiscal 2022 ending December 2022 to worsen 8.9% and 627.8% year-over-year to $137.03 million and $2.62, respectively. Moreover, the company has missed the consensus EPS estimates in each of the trailing four quarters.
MARA’s stock has lost 16.2% over the past month and 71.1% year-to-date to close the last trading session at $9.50.
MARA’s tumbling fortunes, especially in the wake of FTX bankruptcy and its impact on the broader cryptocurrency ecosystem, are reflected in its overall F rating, equating to a Strong Sell in our POWR Rating system.
MARA also has grade F for Growth, Value, Stability, Sentiment, and Quality and grade D for Growth and Momentum.
Click here to access the POWR Ratings for MARA.
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MARA shares were trading at $8.22 per share on Wednesday afternoon, down $1.28 (-13.47%). Year-to-date, MARA has declined -74.98%, versus a -15.82% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities. More...
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