To paraphrase the great Mark Twain, reports that growth stocks are dead have been exaggerated.
While it is true that fears of inflation have sent investors running to the relative safety of industrial, cyclical and value stocks, many growth stocks continue to hold up and are likely to rebound and trade higher. The underlying fundamentals of many growth stocks remain rock solid and the return on investment they offer is undeniable.
There is nothing wrong with most of the technology and growth stocks that have seen their share prices fall 25% or more in recent weeks. If anything, investors should see the current correction in growth stocks as an opportunity to buy shares before the slide reverses and they run higher again.
Here we look at four great growth stocks that could double your investment.
Growth Stocks: DraftKings (DKNG)
Fantasy sports and gambling operator DraftKings has been on fire lately, driven higher by the growing legalization of online sports betting and higher guidance from the company. At a recent investor conference, DraftKings increased its long-term earnings target by more than 40% to $1.7 billion from $1.2 billion.
The company also reported year-over-year fourth quarter revenue growth of $322.2 million, up 146%. DKNG stock jumped 11% on the news.
Should online sports betting become legal nationwide in the U.S., DraftKings forecasts that the market would be worth $22 billion annually. With a 20% market share, DraftKings estimates that it would reap $2.9 billion in additional revenue.
Right now, online sports betting is legal in only 15 states, covering 27% of the American population. DraftKings operates in 12 states, covering a quarter (25%) of Americans.
Many investors are buying DKNG stock now in anticipation that the Biden administration will full legalize online sports betting throughout the country. National legalization would certainly spur more growth.
Don’t count out fintech. While Square and other fintech and online payment stocks have gotten beat up in recent weeks during the flight to cyclical and value companies, they likely won’t be down for long.
Online payments are only growing in popularity and Square continues to capitalize on the acceleration to a digital economy.
Square’s revenue has grown at a compound annual growth rate of 40% during the past five years. During the pandemic, Square’s sales rose more than 100% on an annual basis. The company’s mobile payment “Cash App” rise more than 200% in the third quarter of 2020 compared to a year earlier, accounting for nearly 50% of Square’s $794 million gross profit.
Square is now worth more than $100 billion, and analysts forecast that earnings per share will continue to grow an average 38% annually through 2025. SQ stock is on sale right now at $240 per share. In mid-February, the share price was more than $280.
Growth Stocks: Alibaba (BABA)
China’s answer to Amazon is as big a growth stock as they come. In addition to being a massive online retailer, Alibaba is involved in everything from online banking to cloud computing and artificial intelligence.
BABA stock has been in the doghouse since its planned spin-off of Ant Financial was scuttled by Chinese regulators and Chief Executive Officer Jack Ma adopted a lower public profile. But it won’t be long until this major China stock rebounds.
Alibaba continues to grow and thrive along with China’s burgeoning middle class. Despite racking up $90 billion of annual sales, Alibaba still managed to grow its revenue by 30% in the final quarter of 2020.
Really, the only thing holding BABA stock down is politics, with the Chinese government announcing an antitrust probe into the company. If investors can look beyond the politics though, they will see a stellar company in Alibaba whose stock is down 27% from its 52-week high.
Streaming services are red hot and streaming TV platform Roku is ideally positioned to capitalize on the trend.
Roku, which makes internet-connected television sets that enable people to directly stream content on them, is not yet profitable (the company is eyeing profitability in 2022) and is not cheap at as it trades at 28x forward sales. But Roku’s share of the TV streaming market is impressive enough to justify ROKU stock’s lofty valuation.
Currently, Roku has 30% market share, more than double the market share of its closest rival Amazon (NASDAQ:AMZN), whose Fire TV holds 12% of the market. Active accounts, streaming hours and advertising revenue each rose more than 50% in 2020. The addition of HBO Max to Roku’s content should help buoy growth this year.
While the stock has come off its 52-week high, it remains 130% higher than its share price at the start of last September.
On the date of publication, Joel Baglole held long positions in SQ and BABA. He did not have (either directly or indirectly) positions in any of the other securities mentioned in this article.