In this article, we will look at the 10 Worst Affordable Stocks To Buy Right Now.
How is the Market Performing Entering the Rate Cuts
In one of our recent articles regarding the 10 Hot Penny Stocks On the Move, we discussed how the overall macroeconomic conditions have played a crucial role in building an environment leading to the upcoming Fed rate cut. Here’s an excerpt from the piece:
“The economy of the United States has stabilized, the risks of a recession have been delayed, and inflation continues to cool down. On August 30, Reuters reported that the Federal Reserve received a fresh confirmation regarding inflation continuing to ease. The personal consumption expenditure price index rose 2.5% year-over-year in July and inflation has stayed within the 2% goal set by the Fed. Fed Chairman has indicated that the “time has come to cut rates”.
Moreover, in another report by Reuters on the same day there were reports of the US dollar gaining as another key inflation measure fell in line with the forecasts. The Fed is expected to cut rates by 25 basis points this month. Moving forward markets have forecasted 100 bps of cuts by the end of 2024.
The stock market is already riding the tide of expected interest rate cuts. On August 20, CNBC reported that the stock market was climbing yet again, putting the S&P 500 and NASDAQ on track for their eighth positive session in a row, marking their longest winning streak this year.”
While there has been a debate about a 25-point or a 50-point cut, the market has fluctuated before the announcement. On September 17, CNBC reported that the S&P 500 was lower after reaching a record high on Tuesday. The market reached a new record high of 5,670.81 and was down 0.1% at 5,627. The Nasdaq moved 0.1% higher whereas the Dow Jones fell by 40 points.
The traders have overcome the summer headwinds and moved past the concerns over the health of the US economy on the back of expectations of the Fed cutting interest rates. On the other hand, Wall Street has been on hold. Analysts are hoping the rate cuts will help boost the earnings growth for companies.
Tom Lee, Fundstrat Global Advisors co-founder, joined CNBC to talk about how the market is expected to perform moving into the fed rate cuts and after the announcement. Lee believes that one of the factors leading to confusion among investors is the election period. The market is expected to stay in a fluctuating environment for the next eight weeks until the elections are over. However, fed rate cuts are coming at a crucial time to give some positive for the market.
There are two main reasons leading up to the rate cuts, one being the inflation easing and the other being the slower labor market that needs help from the Federal Reserve. Moreover, Lee thinks that regardless of the Fed deciding on a 25-point or 50-point cut, the result is going to be positive for the market. He thinks that investors should be confident for the next 12 months as whenever the Fed cuts rates, the win ratio for the markets has been almost 100%. Moreover, the markets rally post-elections regardless of who takes the seat.
Now let’s look at the 10 worst affordable stocks to buy right now.
A business executive discussing investment opportunities in a stock exchange office.
Our Methodology
For compiling the list of 10 worst affordable stocks to buy right now, we used the Finviz stock screener. We set our filters to get affordable stocks with high short interest i.e. stocks trading below the market average Forward P/E which is 23.79, expecting positive earnings growth this year, and have high short interest. From the list of affordable stocks, we selected 20 stocks that were most widely held by institutional investors. Once we had the aggregated list, we ranked them based on their Short % of Shares Outstanding, sourced from Yahoo Finance. Please note that the list is ranked in ascending order of the short interest.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10 Worst Affordable Stocks To Buy Right Now
10. Lyft, Inc. (NASDAQ:LYFT)
Forward P/E Ratio: 15.39
Earnings Growth This Year: 13.80%
Number of Hedge Fund Holders: 53
Short % of Shares Outstanding: 11.40%
Lyft, Inc. (NASDAQ:LYFT) operates a ride-hailing platform in the United States and Canada. The platform provides a variety of transportation options by connecting drivers with customers through its Lyft app. It also has an Express Drive program where people can sign a short-term rental agreement to get vehicles through its subsidiary Flexdrive Services and provide ridesharing services.
It has been 5 years since the ride-hailing company went public. However, the company has faced a series of challenges stemming from a volatile market environment, tough competition from competitors like Uber, and difficulty maintaining a positive net income. As a result, the stock price has taken a hit and Lyft, Inc. (NASDAQ:LYFT) has been down 17.75% on a year-to-date basis.
But the story doesn’t end here. Something positive recently happened which might be a sign that the company is ready to bounce back. The financial results for the second quarter of 2024 came as good news for its investors. Lyft, Inc. (NASDAQ:LYFT) hit several all-time highs during the quarter. Its gross bookings were up 17% year-over-year to reach $4 billion. Whereas, rides and active riders hit an all-time high of 205 million and 23.7 million, indicating a 15% and 10% increase respectively.
The liquidity position of the company also improved significantly as it generated more than $256.4 million as free cash flow during the quarter. Moreover, another highlight from its books was its net income turning positive from a net income loss of $114.3 million in Q2 2023 to a positive net income of $5 million during the recent quarter.
Management expects the success to continue through the year. It expects rides growth in the mid-teens, with gross bookings growing slightly faster than the rides growth throughout the year. LYFT is also cheap at current levels. It is trading at 15 times its forward earnings whereas the market average sits at around 23. Analysts expect its earnings will grow by around 14% during the year.
LYFT was held by 53 hedge funds in Q2 2024, with total positions worth $744.96 million. Appaloosa Management LP is the top shareholder with a position worth $112.2 million.
ClearBridge Multi Cap Growth Strategy made the following comment about Lyft, Inc. (NASDAQ:LYFT) in its Q2 2023 investor letter:
“The sale of rideshare provider Lyft, Inc. (NASDAQ:LYFT), similar to our moves in communication services, prunes a smaller position to consolidate the portfolio in our highest conviction ideas. We initially purchased Lyft in May 2021 when rideshare volumes were still depressed due to COVID-19. While Lyft was a clear #2 behind Uber in domestic rideshare, we believed it was a cleaner way to play the U.S. recovery due to the focused nature of its business. However, poor execution and the uneven nature of the U.S. recovery, with West Coast markets where Lyft has historically had greater exposure lagging due to a lack of return to office work, further weakened its market position. In March, Lyft announced co-founder Logan Green would step down as CEO with David Risher, a former Amazon executive, taking his place. While Risher has laid out ambitions to drive Lyft’s market share higher, we believe doing so will require more than a few quarters fix. Furthermore, while the company has looked for areas to right size their cost base, we see necessary investments in price, service levels and product differentiation to drive this turnaround further pushing out the path to improved profitability.”
9. Progress Software Corporation (NASDAQ:PRGS)
Forward P/E Ratio: 12.19
Earnings Growth This Year: 9.20%
Number of Hedge Fund Holders: 27
Short % of Shares Outstanding: 11.55%
Progress Software Corporation (NASDAQ:PRGS) is a technology company that helps businesses create, manage, and deploy their applications smoothly. Some of the key services provided by the company include application development, data management, infrastructure management, infrastructure automation, and consulting services regarding project management and custom software development.
PRGS is trading at only 12 times its forward earnings with earnings expected to grow by 9.20% during the year, thereby making it an affordable stock.
While the short interest is high at 11.55%, it is still held by 27 institutional investors, with stakes worth $173.8 million. Renaissance Technologies is the top holder with a position worth $61 million.
To date the company has more than 100,000 enterprises running their business systems through solutions provided by Progress Software Corporation (NASDAQ:PRGS) and more than 6 million business users work on apps running on Progress technologies.
Management’s focus on artificial intelligence integration and mergers and acquisitions are proving to be successful for the company. Its Q2 revenues were above the higher end of guidance at $175 million. Moreover, earnings per share also exceeded guidance by $0.12 and was recorded at $1.09 for the quarter.
A few acquisitional highlights during the quarter include Progress Software Corporation (NASDAQ:PRGS) acquiring ShareFile, a business unit group of Cloud Software Group. The newly added technology will strategically enhance Progress’ Digital Experience portfolio and enable organizations to deliver effective team collaboration.
Moreover, as a step to unlock AI capabilities, the company released early access to Progress MarkLogic Server 12, which will enable customers to easily integrate generative AI into their businesses. MarkLogic Server 12 has enhanced the relevance and accuracy of AI responses and a single API will allow users to harness the power of AI faster.
Progress Software Corporation (NASDAQ:PRGS) has raised its full-year guidance and now expects revenue between $725 million and $735 million, with EPS between $4.70 and $4.80.
Diamond Hill Small Cap Fund made the following comment about Progress Software Corporation (NASDAQ:PRGS) in its Q3 2023 investor letter:
“Progress Software Corporation (NASDAQ:PRGS) is a diversified, multi-product infrastructure software business with high customer retention and cash-generation capabilities. Its key solutions center around data management and IT environment monitoring — a stable core business which is growing nicely. Over time, we anticipate shareholders should benefit from value-generating M&A — a possibility which the current share price fails to reflect. We also like the management team, which we think is capable and pragmatic.”
8. Haemonetics Corporation (NYSE:HAE)
Forward P/E Ratio: 16.55
Earnings Growth This Year: 16.20%
Number of Hedge Fund Holders: 28
Short % of Shares Outstanding: 11.90%
Haemonetics Corporation (NYSE:HAE) is an international healthcare company that provides a range of medical products and solutions. The technology and solutions provided by the company help reduce the cost of healthcare and improve patient care.
The competitive edge of the company lies in the breadth of its portfolio. Its technology portfolio caters to blood and plasma components, surgical suits, and hospital transfusion services. Haemonetics Corporation (NYSE:HAE) Blood Center solutions are enabling a self-sufficient international plasma supply that is helping meet the demand for plasma therapy.
The company is facing challenges due to its planned CSL transition. As a result, its Plasma revenue declined 3% during the fiscal first quarter of 2025, moreover, North America’s disposal revenue was also down 5%. The transition is expected to slow revenue growth to single digits in fiscal year 2025. Haemonetics Corporation (NYSE:HAE) ranks 8th amongst our worst affordable stocks to buy right now as its short interest as a percentage of shares outstanding is at 11.9%.
But there is a bright side to the story as well. While the Plasma revenue declined 3% during the latest quarter they were up 35% last year, indicating its ability to drive business. Moreover, the company achieved 68% revenue growth on a subsequent basis, and management is focused on achieving individual product targets. The first quarter growth was driven by vascular closure devices and increased emphasis utilization across related procedures.
In addition, Haemonetics Corporation (NYSE:HAE) has also announced full market access for VASCADE MVP XL, which has a 58% larger collagen plug, with positive results across medical procedures. The company has already achieved penetration in 600 plus accounts in the US and over 100 accounts in Japan. It is now aiming to enter the European market this year. It also plans to sustain more than 20% growth in the vascular closure business and expand its leadership position in a $2.7 billion market.
Management continues to expect revenue growth between 5% to 8% for the fiscal 2025. It is cheap at current levels as it is trading at 16 times its forward earnings, a 24% discount to its sector. Analysts expect its earnings to grow by 16% during the year. Moreover, HAE was held by 28 hedge funds in Q2 2024, with total stakes worth $278.93 million. Royce & Associates is the top shareholder of the company, with a position worth $97.6 million.
7. Stride, Inc. (NYSE:LRN)
Forward P/E Ratio: 16.06
Earnings Growth This Year: 6.00%
Number of Hedge Fund Holders: 27
Short % of Shares Outstanding: 12.78%
Stride, Inc. (NYSE:LRN) is a technology company that provides educational learning platforms for students in the US. The platform enrolls, educates, and tracks the progress of the students. Its products and services span over curriculum, education systems, instructions, and support services designed for students of all grades.
It is one of the worst affordable stocks to buy right now as it has a high short interest as a percentage of outstanding shares at 12.78%. However, let’s not forget that LRN was held by 27 hedge funds in the second quarter, with total stakes amounting to $154.16 million.
The two major markets that the company addresses in the K-12 area include General Education and Career Learning.
Stride, Inc. (NYSE:LRN) just ended a successful fiscal 2024, with revenue for the year at an all-time high of $2 billion. The recent year marked the eighth consecutive year of revenue growth. The company has positioned itself as a leader in the education technology and digital learning space. The leadership position was demonstrated by a 9% enrollment growth during the year, General Education enrollment growing 8.3% and Career Learning growing 10.3%.
In terms of finances and profitability, Stride, Inc. (NYSE:LRN) has been gaining investor attention. Its adjusted operating income improved 46% during the year to reach $294 million, with Cash, Cash Equivalents & Marketable Securities at $714.2 million.
Moreover, the company is on track to achieve its FY2028 targets of revenue between $2.7 billion and $3.3 billion, and operating income between $415 million and $585 million. LRN is trading at 16 times its forward earnings, while the market average is at 23. Its earnings are also expected to grow 6% during the year, making it undervalued at current levels.
6. Bank OZK (NASDAQ:OZK)
Forward P/E Ratio: 6.88
Earnings Growth This Year: 2.90%
Number of Hedge Fund Holders: 34
Short % of Shares Outstanding: 13.83%
Bank OZK (NASDAQ:OZK) is a regional bank operating through 230 branches across 6 states in the United States, with 12 loan production offices. It offers various financial services to individuals and businesses including accounts, loans, online banking, wealth management, and other related banking services.
While the stock ranks as one of the worst affordable stocks to buy right now as it has a high short interest as a percentage of outstanding shares at 13.83%, the bank has held its position well in the market this year.
It is not only trading at a 41% discount to its sector, but its earnings are expected to grow by around 3% during the year as well, thereby making it cheap at current levels. Bank OZK (NASDAQ:OZK) was also held by 34 hedge funds in the second quarter with total stakes exceeding $372 million. AQR Capital Management is the top shareholder of the company with a position worth $95.8 million.
The bank is heavily exposed to one of the biggest markets in the United States, namely the real estate market. During the recent quarter earnings report, management reported that real estate accounted for 64% of its total non-purchased loans. Real Estate Specialties Group of Bank OZK (NASDAQ:OZK) has positioned itself as the sole secure lender thereby making RESG the lowest risk position in the capital stack.
This strategic position in the real estate market means that a high interest rate in the market results in high bank interest cuts as well. Moreover, the recent Federal Reserve interest rate cuts around the corner can lead to higher activity in the real estate market, subsequently making higher payouts for the bank as well.
5. Super Micro Computer, Inc. (NASDAQ:SMCI)
Forward P/E Ratio: 13.59
Earnings Growth This Year: 54.30%
Number of Hedge Fund Holders: 47
Short % of Shares Outstanding: 14.96%
Super Micro Computer, Inc. (NASDAQ:SMCI) is one of the prominent players in a swiftly growing data center industry. The company offers a wide range of high-performance servers and storage solutions. Its solutions are used in various high-growth industries such as data centers, cloud computing, artificial intelligence, 5G networking, and edge computing.
Moreover, it is differentiated due to its cutting-edge direct liquid cooling technology that solves one of the major issues of high energy consumption in the data centers and AI market. The short interest of 14.96% as a percentage of shares outstanding makes Super Micro Computer, Inc. (NASDAQ:SMCI) one of the worst affordable stocks to buy right now. Its financial performance says otherwise.
The strong demand from AI customers resulted in the company delivering record sales in a single quarter that surpassed its full-year performance in 2021. The revenue for the fiscal fourth quarter of 2024 improved more than 143% year-over-year, to deliver $5.3 billion during the quarter.
Super Micro Computer, Inc. (NASDAQ:SMCI) also achieved significant milestones during the quarter. It became the first to market 8U AI NVIDIA H100 Liquid Cooled Clusters. Moreover, the company is also developing Supermicro 4.0 DCBBS, a data center building block solution that will significantly reduce the time to build new data centers for its customers.
Stated that the company operates in a series of high-growth markets and its products go hand in hand with tech giants such as NVIDIA, the future of the company looks bright. Management has also raised their next quarter revenue guidance and now expects revenue growth between 183% and 230%.
Lastly, its cheap valuation also aids the bull case thesis for Super Micro Computer, Inc. (NASDAQ:SMCI). The stock is trading at 14 times its forward earnings while the market average sits at 23. Its earnings are also expected to grow by 54% during the year to reach $34.09. SMCI was held by 47 hedge funds in Q2 2024, with total positions worth $1.46 billion.
Diamond Hill Small Cap Fund stated the following regarding Bank OZK (NASDAQ:OZK) in its first quarter 2024 investor letter:
“Our bottom individual contributors in Q1 included WNS Holdings, as well as regional banks Live Oak Bancshares and Bank OZK (NASDAQ:OZK). Shares of regional banks Live Oak Bancshares and Bank OZK consolidated some of late 2023’s gains tied to investors’ expectations the Fed would begin cutting rates in 2024 — which would relieve deposit pricing pressure and commercial real estate stress. As investors have adjusted expectations for fewer rate cuts in 2024, shares of both companies have declined in sympathy.”
4. Aptiv PLC (NYSE:APTV)
Forward P/E Ratio: 11.01
Earnings Growth This Year: 28.40%
Number of Hedge Fund Holders: 38
Short % of Shares Outstanding: 15.22%
Aptiv PLC (NYSE:APTV) is a technology company that provides key technologies for the electric vehicle industry. The company makes vehicle components that are essential for electrical systems such as wiring, connectors, power distribution systems, etc. Moreover, it is also a leading producer of safety technologies that help prevent accidents and enable autonomous driving cars. In addition the company also servers software solutions that enable automakers of next-gen cars to connect and manage their vehicles during after-sale service.
The auto tech supplier has positioned itself to profit from both the internal combustion engine and electric vehicle industries. The growth prospects and market penetration of Aptiv PLC (NYSE:APTV) can be estimated by its substantial year-over-year increase in new business bookings. Over the past 3 years, the company has continued to improve its bookings, in 2022 total bookings stood at $32 billion, which increased to $34 billion in 2023, and management now expects bookings for the current year to be above $35 billion.
The company ranks among the worst affordable stocks to buy right now. It also faced a 3% decline in year-over-year revenue in FQ2 2024. However, there is more to the story. Despite a decrease in revenue, Aptiv PLC (NYSE:APTV) reported substantial net income, which totaled $1.16 billion, with net income margins at 11.6%. Management was able to pull off profitability on the back of strong operational income and lower supply chain costs.
While there are concerns regarding the EV market, Aptiv PLC (NYSE:APTV) remains a viable investment option due to its growing bookings indicating a robust market share and operational profitability. It was held by 38 hedge funds in Q2 2024, with total stakes worth $1.03 billion. Impax Asset Management is the top shareholder with a position worth more than $437 million.
TimesSquare Capital U.S. Mid Cap Growth Strategy stated the following regarding Aptiv PLC (NYSE:APTV) in its first quarter 2024 investor letter:
“At the beginning of the year, we sold our shares in Aptiv PLC (NYSE:APTV), which supplies automotive electronic technology for safety and entertainment systems. The company had expected significant growth from its EV components, though that segment saw much slower growth recently. With no line of sight for a rebound, we exited our position.”
3. Advance Auto Parts, Inc. (NYSE:AAP)
Forward P/E Ratio: 19.24
Earnings Growth This Year: 336.00%
Number of Hedge Fund Holders: 39
Short % of Shares Outstanding: 15.81%
Advance Auto Parts, Inc. (NYSE:AAP) is an auto parts company in North America. It serves both industry operators and DIY customers. The company has approximately 4,785 stores and 320 Worldpac branches in the United States and sells parts from various original equipment manufacturer brands.
The company has been facing a series of market challenges which has led to a decrease of 29.26% in the share price over the past year. The stock short interest as a percentage of outstanding shares is also high at 15.81%, resulting in Advance Auto Parts, Inc. (NYSE:AAP) ranking among the worst affordable stocks to buy right now.
However, management has been constantly working towards making changes to improve its profitability. It has placed greater emphasis on the ongoing Advance blended box initiative, which aims to improve operational efficiency and sales of the company.
During the second quarter of 2024, the company announced the sale of Worldpac for $1.5 billion, leading to a stronger balance sheet and an indication of management’s focus on the profitable segment only.
Investors are looking forward to the strategic measures paying off for the company. Institutional investors have kept their holdings steady for the first two quarters of 2024. Advance Auto Parts, Inc. (NYSE:AAP) was held by 39 hedge funds in Q2 2024, with total stakes worth $653.03 million. Third Point is the top shareholder of the company with a position worth $94.6 million.
Moreover, AAP is also undervalued at current levels because it is trading at 19 times its forward earnings while the market average is at 23. Analysts also expect its earnings to grow by 336.00% this year to reach $2.18.
Cove Street Capital Small Cap Value Fund stated the following regarding Advance Auto Parts, Inc. (NYSE:AAP) in its Q2 2024 investor letter:
“We have three new more material positions added in the quarter. Advance Auto Parts, Inc. (NYSE:AAP) is the third wheel in a very profitable industry of retail/commercial selling of replacement auto parts. Autozone and O’Reilly have shown how to do this well whereas AAP has shown how NOT to. We think new management, a new Board, and a fiendishly simple strategic plan is a path toward a double in the stock price. We consider the downside here to be boredom if the “fiendishly simple” part proves to be more durable than we anticipate.”
2. Chart Industries, Inc. (NYSE:GTLS)
Forward P/E Ratio: 11.09
Earnings Growth This Year: 79.10%
Number of Hedge Fund Holders: 47
Short % of Shares Outstanding: 15.84%
Chart Industries, Inc. (NYSE:GTLS) is a leading manufacturer of equipment for industrial gas, energy, and biomedical industries. Simply speaking, it develops equipment and technologies for handling gasses and liquids, with a prime focus on clean energy solutions.
Its major product segments include Cryo Tank Solutions, which manufactures storage and distribution for industrial gasses and hydrocarbons, Heat Transfer Systems, which are designed for separating, liquefying, and purifying gasses, and Specialty Products.
Chart Industries, Inc. (NYSE:GTLS) is on the path to achieving its medium-term financial targets that include sales growth in the mid-teens, mid-30 % gross margin, and adjusted diluted EPS growth CAGR of mid-40 %. Its total orders for the second quarter grew 12.1% year-over-year to reach $1,164.7 million. The quarter came in with a series of record results including sales improving 18.8% year-over-year to reach a record high of $1,040.3. Moreover, the company also improved its backlog by approximately 13% indicating its improved prospects for the upcoming quarters.
Chart Industries, Inc. (NYSE:GTLS) was held by 47 institutional investors in Q2 2024, with total stakes worth $725.9 million. D E Shaw is the top shareholder of the company with a position worth $181.3 million. Moreover, its cheap valuation makes it affordable at current levels. GTLS is trading at a 42% discount to its sector and its earnings are expected to grow by more than 79% during the year to reach $10.91.
Although the company has a high short interest rate of 15.84% as a percentage of outstanding shares and is one of the worst affordable stocks to buy right now, here’s a different perspective:
With the climate change debate on the rise and the trend of electrification across various industries, the demand for a hydrogen-fueled economy is on the rise. The United States government has awarded a $7 billion funding for several regional hydrogen hubs during the last year. Hydrogen has the potential to electrify heavy industry and that too with zero-carbon.
Why is this detail necessary? Because Chart Industries, Inc. (NYSE:GTLS) is one of the companies feeding the hydrogen economy through its equipment. In the long run as the demand for hydrogen fuel increases, it will bring the demand for the company’s products higher with it.
Heartland Value Fund stated the following regarding Chart Industries, Inc. (NYSE:GTLS) in its first quarter 2024 investor letter:
“We continue to focus on taking what the market gives us while waiting for fat pitches to come our way. This quarter, for instance, we started a new position in Chart Industries, Inc. (NYSE:GTLS). We’ve been monitoring the stock for years and finally saw the buying opportunity we’ve been waiting for. As the leading producer of equipment for the shipment of liquefied natural gas (LNG), Chart Industries sold off sharply on the Biden Administration’s decree to pause new export permits.
We view the pause as a short-term political action in anticipation of the coming election. In any case, GTLS has robust backlogs for the next several years. And if the U.S. truly slows, Chart, an international provider, should benefit as the rest of the world accelerates LNG development…” (Click here to read the full text)
1. Brinker International, Inc. (NYSE:EAT)
Forward P/E Ratio: 15.06
Earnings Growth This Year: 14.10%
Number of Hedge Fund Holders: 33
Short % of Shares Outstanding: 16.21%
Brinker International, Inc. (NYSE:EAT) is a casual restaurant company that owns, develops, and operates franchises of its restaurant brands. It operates through two main business segments including the Chili’s and Maggiano’s. The company owns more than 1,600 restaurants in the United States and 27 other countries.
The restaurant company is one of the worst affordable stocks to buy right now. Affordable because it is trading at 15 times its forward earnings, a 5% discount to its sector. And worst because it has a high short interest as a percentage of shares outstanding standing at 16.21%.
But that does not necessarily mean that it is not a viable investment opportunity. Brinker International, Inc. (NYSE:EAT) is popular among hedge funds in the second quarter 33 hedge funds had stakes in the company. Their total stakes amounted to $663.56 million. D E Shaw is the top shareholder with a position worth more than $131 million.
Being widely held by institutional investors is not the only positive thing about the company. It pretty much-surprised investors when its Q2 sales which topped analysts’ expectations. Its revenue for the quarter was $1.21 billion against the expectation of $1.16 billion.
The company’s same-store sales rose 11.9% year-over-year with free cash flow margins at 6.9% (up from 0.7% during the last year). These encouraging financials along with the raised EPS guidance for fiscal 2025 indicate on-going and upcoming profitability. Management expects EPS for the fiscal 2025 to be at around $4.55 (Midpoint).
Choice Equities Capital Management made the following comment about Brinker International, Inc. (NYSE:EAT) in its Q4 2022 investor letter:
“Our holdings are generally performing as anticipated. As a general statement, despite the potential economic headwinds, we continue to expect growing cash flows, and in nearly all cases operating margin expansion, into next year and beyond. Restaurants – Signs suggest our restaurant margin expansion thesis continue to play out as expected, as restaurants have historically been slow to walk back inflation-based menu price increases with their customers by lowering prices even if incoming food costs decline. Papa John’s Inc. (PZZA) and Brinker International, Inc. (NYSE:EAT) continue to execute well.
We continue to find new attractive investments, particularly under a broader theme of normalization. Somewhat like our restaurant margin expansion thesis, we are finding ample opportunities in other industries where companies look poised for margin expansion on the back of cost relief from normalizing prices on items such as freight, cotton or merchandising margins.”
While we acknowledge the potential of Brinker International, Inc. (NYSE:EAT) to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for a promising AI stock that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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