Potentially Undervalued Fighting-Fit Stocks

Criteo SA (NASDAQ:CRTO)

The Paris-based digital performance marketing company — predictive algorithms based solutions for e-commerce clients to improve user engagement and conversion — reported better than expected earnings for the fourth-quarter. Actual EPS and revenue came in at $0.84 and $225 million compared to expected $0.68 and $210 million, making it the fifth consecutive earnings beat.
CEO-speak: “2016, was another phenomenal year for Criteo, the unique strength of our model allowed us to further solidify our market position. We grew our top-line 36% to $1.8 billion and our adjusted EBITDA 57% to $225 million. We added over 4,000 net clients. We maintained client retention on 90% while increasing our client base 42%.”
The company expects geographic expansion of its core product — Criteo Engine solution to tailor advertisements for better user engagement — and the launch of its new product Criteo Predictive Search, what it calls “a game changing approach to google shopping”, in key markets to drive growth in 2017. Additionally, bringing in “performance marketing to brands on the e-commerce platforms” through expansion of Criteo Sponsored Products (formed through the acquisition of HookLogic) will also be a growth avenue going forward, said the company. Considering CRTO’s recent performance and acquisition, analysts’ three-year EPS growth consensus of over 100% doesn’t seem that optimistic. In addition, CRTO appears reasonably priced when compared to its estimated intrinsic value. However, what makes CRTO a fighting-fit stock is its strong balance sheet — a debt-to-equity ratio of just 14% along with $270 million in cash and investments. While CRTO expects more than 25% revenue growth this year, the company’s first-quarter earnings guidance was below expectations, primarily due to currency headwinds.

United Natural Foods Inc (NASDAQ:UNFI)

Based in Rhode Island, the organic food retailer and distributor not only appears to be trading at a significant discount to its free-cash-flow-value, it’s also projected to deliver an EPS growth of nearly 30% over the next three years. However, what makes UNFI a financially-fit company is its debt-to-equity ratio of just 38% and an earnings to interest expense ratio of 6.8. UNFI’s revenue has been below market’s expectations over the past three quarters, but the earnings-miss, along with a lower margin, in the last-reported quarter has kept shares under pressure since December. Despite that, UNFI shares are up nearly 17% over the past year as a nearly 50% drop in its market capitalization in 2015 brought in value-investors looking for bargain-prices. The stock came crashing as CRTO’s revenue growth dropped to mid-single digits after five-years of strong double-digit increases that were driven by strong organic growth and several acquisitions. While analysts project better growth going forward, the net profit margin of 1.4% over the past year, compared to 1.8% in FY’14 on a smaller revenue base, has kept potential investors at bay. But the company’s current valuation may draw interest if it delivers margin expansion going forward, given its leading position in the industry.