Lingering concerns about the spike in COVID-19 cases globally due to the fast-spreading Delta variant and its impact on the economic recovery, coupled with the fading fiscal stimulus, have made investors anxious about the tenor of the economic recovery. In addition, with wages rising even with weak hiring, worries about inflation have resulted in a bumpy September for the stock market.
However, despite these concerns, Federal Reserve Chairman Jerome Powell indicated that current, heightened, inflation is transitory and should eventually fall to target levels. Furthermore, notable job gains last month and a slight decline in the unemployment rate should buoy the stock market in the coming months. This bullish outlook and the continuing low-interest-rate environment bode well for small-cap stocks.
Therefore, we think fundamentally sound small-cap stocks AdvanSix Inc. (ASIX), Vera Bradley, Inc. (VRA), ARC Document Solutions, Inc. (ARC), which look undervalued at their current price levels, could be solid bets now.
AdvanSix Inc. (ASIX)
ASIX is a fully integrated manufacturer of nylon six resin, chemical intermediates, and ammonium sulfate fertilizer. ASIX products are used in carpets, engineering plastics, food packaging, building and construction, plant nutrients, paints and coatings, and plastic and resin intermediates. ASIX is headquartered in Morris Plains, N.J.
ASIX’s sales increased 87.8% year-over-year to $437.68 million in the second quarter, ended June 30, 2021. The company’s net income increased 286.1% from its year-ago value to $44.13 million. Its EPS increased 273.2% from the prior-year quarter to $1.53. And the company’s EBITDA increased 147.2% year-over-year to $75.96 million.
Analysts expect ASIX’s revenue for the fiscal year 2021 to be $1.57 billion, representing 35.3% growth year-over-year. In addition, the company has an impressive earnings surprise history; it beat the consensus EPS estimates in each of the trailing four quarters. Its EPS is expected to grow 160.4% in the current year and 5,200% next quarter.
In terms of forward EV/Sales, ASIX is currently trading at 0.87x, which is 50.7% lower than the 1.75x industry average. And in terms of its forward Price/Sales, the stock is currently trading at 0.68x, which is 52.6% lower than the 1.43x industry average. Furthermore, the stock has gained 87.8% in price over the past nine months and 167% over the past year.
ASIX’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
ASIX has an A grade for Value and Growth, and a B for Quality. We’ve also graded ASIX for Sentiment, Momentum, and Quality. Click here to access all ASIX’s ratings. ASIX is ranked #3 of 45 stocks in the A-rated Industrial-Manufacturing industry.
Click here to check out our Industrial Sector Report for 2021
Vera Bradley, Inc. (VRA)
VRA produces and markets customized bags, backpacks, travel goods, home items, accessories, apparel, gifts, and school items with exclusive patterns and fabrics. Vera Bradley Direct; Vera Bradley Indirect; and Pura Vida are the company's segments. The Roanoke, Ind., company runs 75 full-line and 69 factory outlets.
In July, VRA collaborated with The Walt Disney Company (DIS) to launch “The Disney Collection by Vera Bradley.” Customers could avail themselves of this new collection in all VRA full-line stores, in selected VRA factory locations, and on its e-commerce website. The latest collections will give customers a new experience with VRA products with hand-drawn Disney’s “Sensational Six” favorite friends with bright colors and iconic paisleys.
For its fiscal second quarter, ended July 31, 2021, VRA’s net revenue increased 11.6% year-over-year to $147.05 million. The company’s gross profit increased 0.9% from its year-ago value to $80.36 million. Its net income increased 18.4% from the prior-year quarter to $9.86 million. Also, its operating income stood at $12.65 million.
VRA’s revenue is expected to increase 21.8% year-over-year to $570.3 million in its fiscal year 2022. The company has an impressive earnings surprise history; it beat the consensus EPS estimates in three of the trailing four quarters. The company’s EPS is expected to increase 50.8% in the current year.
In terms of forward EV/Sales, VRA is currently trading at 0.73x, which is 52% lower than the 1.52x industry average. And in terms of its forward Price/Sales, the stock is currently trading at 0.62x, which is 51.1% lower than the 1.26x industry average. The stock has gained 25.1% in price over the past nine months and 35.4% over the past year.
VRA’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to a Buy in our proprietary rating system. Also, the stock has an A grade for Value, and a B for Quality and Momentum.
In addition to the POWR Rating grades I’ve just highlighted, one can see VRA’s ratings for Growth, Stability, and Sentiment here. The stock is ranked #37 of 64 stocks in the A-rated Fashion & Luxury industry.
ARC Document Solutions, Inc. (ARC)
ARC is a specialty digital printing company that provides document imaging and graphic production services to help visual communication professionals. Printing; Onsite Managed Print Services; Document Scanning; Equipment and supplies; and Enterprise Customer are the solutions provided by the Walnut Creek, Calif.-based company. ARC’s brands include ARC Facilities, Riot Creative Imaging, and SKYSITE Document Management.
ARC’s net sales increased 7% year-over-year to $68.8 million for the second quarter, ended June 30, 2021. The company’s gross profit rose 11.5% from its year-ago value to $22.79 million. Its income from operations grew 56.1% from the prior-year quarter to $4.19 million. Also, the company’s net income increased 73.8% year-over-year to $2.47 million.
ARC has an impressive earnings surprise history; it beat the consensus EPS estimates in three of the trailing four quarters. In terms of trailing-12-months EV/EBITDA, ARC is currently trading at 5.07x, which is 65% lower than the 14.48x industry average. And in terms of its trailing-12-months Price/Sales, the stock is currently trading at 0.45x, which is 72.5% lower than the 1.65x industry average. ARC’s stock has surged 113.9% over the past nine months and 157.4% over the past year.
It’s no surprise that ARC has an overall A rating, which equates to a Strong Buy in our POWR Rating system. Also, the stock has an A grade for Value and Quality, and a B for Momentum.
Click here to see the additional POWR Ratings for ARC (Growth, Stability, and Sentiment). In addition, ARC is ranked #2 of 48 stocks in the B-rated Outsourcing- Business Services industry.
ASIX shares were trading at $36.62 per share on Wednesday afternoon, down $0.38 (-1.03%). Year-to-date, ASIX has gained 83.19%, versus a 21.40% rise in the benchmark S&P 500 index during the same period.
About the Author: Priyanka Mandal
Priyanka is a passionate investment analyst and financial journalist. After earning a master's degree in economics, her interest in financial markets motivated her to begin her career in investment research.
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