Typically, when analyzing stocks, there’s a tradeoff between value and growth.
If a stock is cheap, or undervalued, then it means that the company’s revenues and profits are unlikely to explode higher… barring some sort of outside catalyst. And, if a stock is posting impressive growth figures, then it’s likely to have high multiples which means there’s a considerable risk if or when it falls short of these expectations.
So, that’s why the growth stock of the week - Integra Lifescience Holdings (IART) - is so compelling, as it’s a rare stock that is cheap but is rapidly growing. IART is a medical device and technology company that creates instruments and equipment used in delicate procedures like neurosurgery, orthopedics, and plastic surgery.
Favorable Conditions
Understanding market conditions is key to finding stocks that will outperform. Currently, the market remains in a bullish trend as earnings continue to grow, while the Fed remains accommodative with rates at zero, and the Fed buying $80 billion of assets every month.
While economic growth remains positive, it’s clearly slowing as evidenced by the decline in long-term rates. Another recent drag has been the increase in coronavirus case counts which is negatively impacting consumer spending and delaying the economy’s return to normal.
This combination of slowing growth and loose policy amid a bullish backdrop favors companies with revenues that are disconnected from economic growth such as medical devices. Further, IART makes products that are used in complicated surgeries that lend themselves to increased pricing power over time.
Growth Story
IART’s growth is quite impressive on a short and long-term basis. In 2021, it had revenue growth of 12% and is projected to grow by 6% next year. The company has also topped earnings and revenue expectations for four straight quarters, indicating that Wall Street continues to underestimate its potential. They have also been hiking EPS estimates for the next quarter and 2022.
Over the next 5 years, analysts expect IART’s revenues to grow by 17% on an average basis which would be an acceleration from its 13% average growth rate over the past 5 years. Of course, this growth story is even more enticing given that the stock doesn’t have the high multiples that come with such strong and steady growth.
Strong Management Team
The company’s track record of growth and topping expectations is one indication of its strong management team. Another is its success in entering niche markets with little competition. Some notable examples are neurosurgery, orthopedics, and burn therapy. As these markets grow, IART will grow, and it continues to expand into other areas through acquisitions or new products.
Another recent development to like about the stock is the explosion in profit margins to over 13%. This is more than double what it was before the pandemic. And, it confirms that IART has pricing power in its niches especially as buyers are less price-sensitive.
POWR Ratings
The POWR Ratings are also bullish on IART as it’s rated A, which equates to a Strong Buy. A-rated stocks have posted an average annual performance of 30.7% which compares favorably to the S&P 500’s 7.1% performance.
The POWR Ratings also evaluates stocks by component grades. Given its attractive combination of growth and value, it’s not surprising that it has grades of A and B in these two categories, respectively. To see more of IART’s POWR Ratings, click here.
Putting It All Together
Overall, IART is a great stock for this market environment. given the various headwinds related to slowing growth, inflation, coronavirus, the Fed, etc. Such a combination of growth and value is rare, especially with increasing margins. Given these factors, investors should consider buying IART as it has all the ingredients of a long-term outperformer.
IART is just one of the stocks in my POWR Growth portfolio. That’s where I combine my many years of investing experience with the Top 10 Growth Stocks strategy, which has +46.42% annual returns, to bring investors the best growth stocks for today’s market.
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IART shares were trading at $75.49 per share on Tuesday afternoon, down $0.40 (-0.53%). Year-to-date, IART has gained 16.28%, versus a 21.62% rise in the benchmark S&P 500 index during the same period.
About the Author: Jaimini Desai
Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. He is the Chief Growth Strategist for StockNews.com and the editor of POWR Growth newsletter. Learn more about Jaimini’s background, along with links to his most recent articles.
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