In the world of investments, the allure of under-the-radar stocks gaining momentum is akin to discovering hidden treasures. Beyond the buzz surrounding well-established giants, the financial landscape holds secrets to lucrative opportunities. The article explores the fundamentals of three such under-the-radar stocks, all set to redefine the trajectory of returns by 2025.
The first one’s Smart Entry System emerges as a beacon of growth, witnessing a remarkable 50% year-over-year surge in installations. This translates into immediate revenue and lays the groundwork for sustained profitability through service and maintenance. The second one is navigating the intricate semiconductor market with finesse. Despite industry contractions, Photronics suggests a revenue boost in 2023, representing its resilience and strategic positioning.
Lastly, with its diversified market presence, the third one experiences robust revenue expansion. The company’s ability to navigate various sectors shields it from market-specific fluctuations, underscoring a strategic approach to sustained growth. Explore these under-the-radar stocks, deciphering the factors propelling their ascent and why they are poised to be game-changers.
Janus International (JBI)
For Janus International (NYSE:JBI), Nokē Smart Entry System’s strong performance is a key growth factor. The increase to approximately 255K total installed units represents over 50% year-over-year growth in Q1–Q3 2023 from the end of 2022. This suggests robust adoption and market penetration. This contributes to immediate revenue and establishes a foundation for recurring revenue through service and maintenance.
Additionally, an anticipated expansion of a major REIT‘s (undisclosed) installed base for the Nokē Screen digital access to more than 400 additional facilities suggests Janus International’s strategic partnerships. Also, Janus International’s decision to migrate the Nokē Smart Entry system to Amazon (NASDAQ:AMZN) Web Services (AWS) represents a forward-looking approach. Leveraging AWS, industrial IoT, AI, and security capabilities highlights the company’s focus on staying at the edge of technology.
Furthermore, Janus International’s overall performance in Q3, marked by an adjusted EBITDA of $76.2 million (a 20.4% year-over-year increase), reflects operational solid efficiency. In detail, the year-over-year improvement in the adjusted EBITDA margin by 3.1%, reaching 27.2%, suggests the ascending direction of Janus International’s margin improvement. The company’s focus on commercial actions, favorable mix, and productivity initiatives has effectively countered higher costs in labor and logistics.
Looking forward, Janus International raised its outlook for 2023, expecting revenue to be from $1.08 billion to $1.09 billion. This suggests a 6.4% year-over-year increase at the midpoint compared to 2022 results. The adjusted EBITDA is expected to be $280 million to $290 million, representing a 25.6% year-over-year increase at the midpoint.
Photronics (PLAB)
Photronics (NASDAQ:PLAB) has fundamental strengths that breed its potential for rapid growth. One key strength lies in the company’s consistent revenue growth, achieving record figures for the sixth consecutive year with a compound annual growth rate surpassing 12% over the last six years. Also, in the challenging macro context of a flat photomask market and an anticipated semiconductor industry contraction of up to 12%, Photronics managed an 8% year-over-year revenue boost for the full year 2023.
Additionally, Photronics is resilient in revenue generation during semiconductor industry downturns. Similarly, Photronics excels in profitability and margin performance. The company has attained an operating margin of 28.4% for fiscal 2023. The solid gross margin of 37.3% highlights the company’s profitability, driven by stable pricing, effective cost controls, and operational leverage. The operating margin’s ascent from 25.7% in 2022 to 28.4% in fiscal 2023 points out Photronics’ bottom-line growth trajectory.
The company reported non-GAAP EPS of $2.04 for shareholder value creation, with operating income having delivered a compound annual growth rate of 41% (over six years) to build up shareholder value. Photronics is actively considering share repurchase initiatives, with $32 million remaining from a prior $100 million authorization.
Fundamentally, strategic investments in growth and capacity expansion are vital to Photonics’ growth strategy. Ongoing focus on high-return projects has an expected CapEx of $140 million in 2024, primarily directed towards high-end and mainstream IC capacity. This reflects the company’s forward-looking approach to value growth. Finally, the investment in a new multi-beam lithography tool for development and high-end production enhancements positions Photronics for continued growth.
Sanmina (SANM)
Sanmina (NASDAQ:SANM) has solid performance momentum supporting its market valuations. Sanmina’s fiscal 2023 performance reflects a robust growth trajectory. The revenue expanded by 13% year-over-year. This growth reflects the company’s market positioning and capability to capitalize on emerging opportunities.
One of Sanmina’s fundamental strengths lies in its diversified market presence. For Q4 2023, revenue from industrial, medical, defense, aerospace, and automotive came in at 65.4%. Whereas, communication networks and cloud infrastructure contributed 34.6%.
Meanwhile, the communication end market experienced adjustments; other segments, such as industrial, medical, defense, and automotive, remained flat or demonstrated growth. This diversification acts as a strategic shield. It reduces the company’s dependence on a single market and neutralizes (to some extent) the risks associated with market-specific fluctuations. The pre-tax Return on Invested Capital (ROIC) also stands at 26.4%. Hence, this suggests Sanmina’s capability to generate solid returns on its invested capital.
On the other hand, there were share repurchases, amounting to approximately 600K shares for a total of $33 million during Q4 and 1.58 million shares for about $84 million in 2023. This demonstrates Sanmina’s focus on maximizing shareholder value. The remaining authorization of $279 million for additional share repurchases positions the company to support and boost the market valuation by returning cash to shareholders.
Looking forward, the Q1 fiscal 24 outlook for potential inventory adjustments in the communications end market indicates a realistic assessment of market dynamics. The estimated capital expenditure of around $40 million for Q1 reflects the company’s considerable investment in new programs and infrastructure to support expected growth in H2 fiscal 2024 and beyond. Therefore, strategic capital allocation may lead to sustained market value expansion for future growth initiatives. If you are looking for under-the-radar stocks, start here.
On the date of publication, Yiannis Zourmpanos did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
