As this bull market heats up, frothy valuations are beginning to show up. Some companies are garnering unwarranted attention by just mentioning AI in their earnings call. Avoid getting caught up in the hype by considering undervalued growth stocks showing impressive results today.
Identifying undervalued growth stocks means searching for companies with strong potential for future growth that are currently priced affordably. Historical growth and the total addressable market are good indicators of growth possibilities. Moreover, these picks must be profitable and trade at reasonable forward price-to-earnings ratios.
The following companies are showing robust growth, achieving over 15% quarter-over-quarter sales growth in their most recent earnings. What’s more, their end markets are in healthy shape and have shown growing demand.
With strong growth prospects and cheap multiples, these are top picks as undervalued growth stocks. According to Finviz data, the following three stocks are projected to grow EPS by 30% annually over the next five years. Let’s explore why these companies could be considered solid picks for investors seeking growth at a reasonable price.
Vertiv Holdings (VRT)
Vertiv Holdings (NYSE:VRT) specializes in designing, manufacturing, and servicing critical digital infrastructure technologies, communication networks, and commercial and industrial environments. Particularly, the company has attractive growth prospects in its life cycle services and cooling systems for data centers.
Given the exponential growth in data consumption, the Internet of Things (IoT) and cloud computing, the demand for dependable and efficient data center infrastructure is soaring. Admittedly, AI data centers are more power-intensive, requiring 60 or more kilowatts per rack compared to traditional ones that require five to 10 kilowatts per rack.
This increased power usage fits Vertiv, which serves those end markets. Its cooling systems, power supplies, and services are critical for operating data centers worldwide. In Q3 FY2023, the company achieved 17% year-over-year organic growth in net sales, with a notable 11% increase in orders.
With management expecting 21% organic growth for FY2023, Vertiv stands out as an undervalued growth stock. Trading at 26 times forward earnings, it’s bargain for a company expected to grow EPS by over 200% this year.
Vertiv’s products, such as chillers, heat rejection systems, switchgear, cooling systems, busbars and UPS, are seeing tremendous demand from data center buildouts. The company is positioned as a one-stop solution for all power and cooling needs for the data center and will continue to win.
e.l.f. Beauty (ELF)
Following impressive earnings on Feb. 6, e.l.f. Beauty (NYSE:ELF) remains one of the most undervalued growth stocks. This cosmetics company is known for its affordable, high-quality beauty products. It sells its products through online channels and major retailers like Target (NYSE:TGT).
e.l.f. Beauty has carved out a niche in the competitive beauty industry by offering vegan and cruelty-free products. This approach appears to be resonating with ethically minded consumers, which is why the company delivered a beat and raise quarter.
The just released third quarter fiscal 2024 results were impressive. Net sales were $270.9 million, representing 85% year-over-year growth compared to 49% in Q3 FY2023. This acceleration clearly indicates soaring demand and yet another quarter of market share gains.
The 305 basis points gained in market share marked the 20th consecutive quarter of gains, and based on management’s upbeat guidance, they expect this trend to continue. For FY2024, revenue expectations have been raised from $896-906 million to $980-990 million.
The growing consumer preference for ethical beauty products will buoy ELF stock. Furthermore, the beauty industry’s resilience to economic downturns is another positive. Finally, as e.l.f. Beauty expands into new categories, revenues will continue to soar.
Nextracker (NASDAQ:NXT) provides solar tracker solutions, essential components in solar photovoltaic (PV) installations. Its systems and software help optimize the orientation of solar panels to the sun, enhancing their energy output.
With the global push towards renewable energy, the demand for solar energy solutions, including tracking systems, is expected to grow substantially. According to Mordor Intelligence, the solar tracker market will grow at a 22.38% compounded annual growth rate between 2024 and 2029. Nextracker’s leadership, coupled with its strong pipeline of global projects, positions it well to capitalize on this growth.
Q3 FY2024 results were another demonstration of the ongoing momentum, with revenue surging 38% YOY to $710 million. Adjusted EBITDA was more impressive at $168 million, a 168% YOY growth. Moreover, the company achieved a 10-gigawatt backlog in India, the Middle East and Africa, setting a record.
After the impressive earnings, there was a deluge of price target hikes from analysts. JPMorgan Chase increased the price target from $61 to $73. Truist Securities and Piper Sandler also increased their targets to $70 and $63, respectively. Earnings momentum and these analysts’ upgrades underline why Nextracker is one of the undervalued growth stocks for 2024.
The market has not fully recognized Nextracker’s growth potential, in light of the increasing investments in renewable energy infrastructure. As of this writing, it trades at 21 times FY2024 GAAP diluted EPS guidance of $2.53 to $2.90. Nextracker’s technology increases the efficiency and reliability of solar power plants and will drive the growth narrative.
On the date of publication, Charles Munyi had a long position in ELF but did not hold (either directly or indirectly) any positions in other securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.