While inflation is decreasing, recession fears remain widespread due to bank failures and elevated interest rates. Although the market may remain turbulent in the near future, I think investing in Fast Retailing Co., Ltd. (FRCOY), Dr. Reddy’s Laboratories Limited (RDY), and Potbelly Corporation (PBPB) could be worth. These fundamentally robust stocks look poised to witness solid growth.
Raphael Bostic, President of the Atlanta Federal Reserve, announced that the central bank would approve one more interest rate increase before pausing to examine the impact of policy tightening on the economy.
The Conference Board’s Leading Economic Index for the United States fell for the 12th month in a row in March, indicating that a recession this year.
Fifty-four percent of company and trade group economists see the likelihood of a slump in the next 12 months at 50% or less. According to a National Association of Business Economics survey, 44% believe there is a better than even likelihood of a recession.
Let’s discuss the stocks mentioned above in detail.
Fast Retailing Co., Ltd. (FRCOY)
Headquartered in Yamaguchi, Japan., FRCOY, through its subsidiaries, operates as an apparel designer and retailer in Japan and internationally. The company operates through four segments: UNIQLO Japan; UNIQLO International; GU; and Global Brands.
FRCOY’s trailing-12-month gross profit margin of 51.75% is 47.4% higher than the industry average of 35.11%. Its trailing-12-month net income margin of 10.98x is 150.6% higher than the industry average of 4.38x.
For the first half that ended February 28, 2023, FRCOY’s revenues came in at ¥1.47 trillion ($10.96 billion), up 20.4% year-over-year. Its gross profit increased 38.2% year-over-year to ¥741.52 million ($5.54 billion), up 17.9%. Also, its profit came in at ¥164.63 billion ($1.23 billion), up 6.6% year-over-year. In comparison, its EPS increased 4.4% year-over-year to ¥499.56.
FRCOY’s revenue grew at a CAGR of 4.7% over the past three years. In addition, its EBIT grew at a CAGR of 13.7% over the past three years.
Analysts expect FRCOY’s revenue to increase 9.6% year-over-year to $21.73 billion for the fiscal year ending August 2024. Its EPS is expected to grow 33.2% year-over-year to $0.68 for the same period. FRCOY’s shares have gained 50.5% over the past year to close the last trading session at $23.60.
FRCOY’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
FRCOY has an A grade for Growth and a B for Stability, Sentiment, and Quality. Within the B-rated Fashion & Luxury industry, it is ranked #8 out of 67 stocks. Click here for the additional POWR Ratings for Value and Momentum for FRCOY.
Dr. Reddy’s Laboratories Limited (RDY)
Headquartered in Hyderabad, India, RDY is a globally integrated pharmaceutical firm. Its segments include Global Generics; Pharmaceutical Services and Active Ingredients (PSAI); Proprietary Products; and Others. The company is also involved in the biologics industry.
On April 21, 2023, RDY announced the launch of Treprostinil Injection in the United States, a therapeutic comparable generic version of Remodulin® (treprostinil) Injection, which has been approved by the United States Food and Drug Administration (USFDA).
RDY’s forward Price/Sales of 3.35x is 17.3% lower than the industry average of 4.05x. Its forward EV/EBIT multiple of 17.42 is 18.5% lower than the industry average of 21.36.
RDY’s trailing-12-month gross profit and EBITDA margins of 55.67% and 23.81% are significantly higher than the industry averages of 55.65% and 1.92%, respectively.
RDY’s revenues increased 27.3% for the third quarter that ended December 31, 2022, to Rs67.70 billion ($827.27 million) in the fiscal second quarter ended September 30, 2022. Its gross profit increased 40.1% year-over-year to Rs40.09 billion ($489.92 million).
Moreover, the company’s profit for the period rose 76.5% year-over-year to Rs12.47 billion ($152.39 million), while its EPS rose 76.4% year-over-year to Rs74.95.
RDY’s revenue grew at a CAGR of 11.7% over the past three years. In addition, its EBIT grew at a CAGR of 17.3% over the past three years.
Street expects RDY’s revenue to increase 27.6% year-over-year to $835.83 million for the first quarter ending June 30, 2023. It’s EPS to come in at $0.65 for the same period. It has surpassed EPS estimates in three of trailing quarters. Over the past three months, the stock has gained 13.3% to close the last trading session at $59.47.
It’s no surprise that RDY has an overall A rating, equating to a Strong Buy in our POWR Ratings system. It has an A grade for Growth and a B grade for Value, Stability and Sentiment. It is ranked #6 out of 64 stocks in the Medical - Pharmaceuticals industry.
Beyond what is stated above, we’ve also rated RDY for Momentum and Quality. Get all RDY ratings here.
Potbelly Corporation (PBPB)
PBPB and its subsidiaries, owns, operates, and franchises Potbelly sandwich shops in the United States.
PBPB’s forward EV/Sales of 1.03x is 6.3% lower than the industry average of 1.10x. Its forward Price/Sales multiple of 0.66 is 20.5% lower than the industry average of 0.83.
PBPB’s trailing-12-month ROCE of 403.25x is significantly higher than the 11.79x industry average. Its trailing-12-month asset turnover ratio of 1.81% is 74.7% higher than the 1.04% industry average.
For the fiscal fourth quarter ended December 25, 2022, PBPB’s total revenues increased 16.9% year-over-year to $120.15 million. Its net profit came in at $2.66 million, compared to a net loss of $2.48 million in the prior year. Also, its EPS amounted to $0.09, compared to a loss per share of $0.09 in the same quarter.
PBPB’s revenue grew at a CAGR of 3.3% over the past three years.
PBPB’s revenue is expected to increase marginally year-over-year to $117.70 million for the quarter ending September 2023. Its EPS is expected to grow at 300% year-over-year to $0.04 for the same quarter. Over the past six months, the stock has gained 128.4% to close the last trading session at $10.85.
PBPB’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 #3 out of 46 stocks in the A-rated Restaurants industry. It has an A grade for Growth and a B for Value. To see additional PBPB’s rating for Stability, Sentiment, Momentum and Quality, click here.
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FRCOY shares were trading at $23.89 per share on Thursday afternoon, up $0.29 (+1.21%). Year-to-date, FRCOY has gained 18.33%, versus a 7.62% 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.
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