Fundamental analysis focuses on a company’s finances, catalysts, valuation, and other components that impact a stock’s long-term performance. It doesn’t consider technical indicators like 50-day moving averages and oscillators.
Looking at long-term stocks also makes it easier to invest. Instead of timing the stock market and looking for opportunities to sell your shares at high prices, investors can take a more passive role if they focus on the fundamentals.
A passive approach can go wrong if companies become overstretched, lose their catalysts, and endure sharp corrections. Many growth stocks that looked like guaranteed winners during the pandemic collapsed a few years later. That’s why investors should also assess each stock’s valuation and look for companies that offer good margins of safety.
Value is in the eye of the beholder, but these are some of the most undervalued stocks. They are all profitable, come with good growth catalysts, and have reasonable P/E ratios relative to the competition.
American Express (AXP)
American Express (NYSE:AXP) is winning younger customers. More than 75% of new Gold and Platinum accounts came from Millennials and Gen Z consumers. That trend carried over into the first quarter of 2024. During that quarter, American Express delivered 11% year-over-year revenue growth while net income jumped by 34% year-over-year. The company closed out the quarter with a 16.9% net profit margin.
Investors enjoyed those results and continued to buy shares. American Express stock is now up by 25% year-to-date and has gained 83% over the past five years. The stock trades at a 19x P/E ratio which is lower than most credit and debit card stocks.
To top it all off, American Express is also a dividend growth stock with a 1.19% yield. The company has maintained a double-digit dividend growth rate for several years. American Express hiked its dividend by 17% earlier this year. The stock has a higher yield than its competitors.
Texas Roadhouse (TXRH)
Texas Roadhouse (NASDAQ:TXRH) is another dividend growth stock that is attracting more investors. While American Express has achieved returns similar to the S&P 500 over the pst five years, Texas Roadhouse has left the index in the dust. TXRH shares have recorded a 5-year gain of 220% and they are also up by 44% year-to-date.
The steakhouse chain has a 35x P/E ratio and a 1.42% yield. Texas Roadhouse has maintained a double-digit dividend growth rate for several years, including an 11% dividend hike earlier this year.
Recent financial results suggest that Texas Roadhouse will continue the momentum. The restaurant chain reported 12.5% year-over-year revenue growth in the first quarter while net income was up by 31.9% year-over-year. Comparable sales increased by 8.4% year-over-year, demonstrating that the restaurant has traction with its 753 locations. While other restaurant stocks with double-digit revenue growth rates have reached astronomical valuations, Texas Roadhouse still has a reasonable valuation.
CommVault Systems (CVLT)
CommVault Systems (NASDAQ:CVLT) is a cloud security firm that helps businesses oversee their digital data from one centralized platform. Cybersecurity is a booming industry that is projected to maintain a compounded annual growth rate of 9.7% from now until 2030. CommVault Systems’ growing annual recurring revenue model suggests that it’s primed to expand as the pie gets bigger.
The cloud security firm reported 10% year-over-year revenue growth in the fourth quarter of fiscal 2024. Subscription revenue was up by 27% year-over-year and made up more than half of the company’s Q4 FY24 revenue. CommVault Systems even initiated a $50.4 million stock buyback due to a tax windfall.
Revenue is accelerating. Total revenue for the entire fiscal year was up by 7% year-over-year compared to the 10% growth rate in Q4 FY24. Furthermore, annual recurring revenue reached $770 million. That includes $597 million in subscription annual recurring revenue, which increased by 25% year-over-year. The cloud security company is profitable and has gained 59% year-to-date. Shares are also up by 142% over the past five years.
On this date of publication, Marc Guberti held long positions in TXRH and CVLT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.