Growth stocks, which have seen mouth-watering returns over the past decade, tend to be in the limelight and in many long-term portfolios. The market has rewarded those companies that have “growth premium,” such as high revenue, cash generation, profit or earnings per share (EPS). Put another way, expectations of high growth typically increase the share price of a given business. Therefore, today I’ll introduce seven growth stocks that deserve your attention in April.
After bottoming out in spring 2020, most growth darlings of the Street have been on an impressive bull run. A large number of shares, funds, as well as indices, have recently seen record highs. For instance, the S&P 500 crossed 4,000 in early April, and is up more than 55% in the past 12 months. Similarly, the Nasdaq 100 index, which returned in excess of 70% in the past 52 weeks, hit an all-time high in mid-February. Given these impressive metrics, investors are not shy to buy the dips in growth names.
On a final note, April means that start of a busy quarterly reporting season. Research highlights that growth stocks “are relatively expensive and so any loss of confidence in the market is likely to lead to a significant price correction,” especially during earnings announcements. Therefore, buy-and-hold investors should be ready to embrace some short-term volatility.
With that information, here are seven growth stocks:
- Chewy (NYSE:CHWY)
- Corning (NYSE:GLW)
- DocuSign (NASDAQ:DOCU)
- DraftKings (NASDAQ:DKNG)
- Invesco Dynamic Semiconductors ETF (NYSEARCA:PSI)
- Spotify Technology (NYSE:SPOT)
- Square (NYSE:SQ)
Growth Stocks: Chewy (CHWY)
Dania Beach, Florida-headquartered Chewy operates a well-known e-commerce platform, marketing pet products, supplies as well as medications. Consumers have access to more than 2,000 brands and 45,000 items, including Chewy’s own brands. Its current market capitalization stands at $34 billion.
On March 30, Chewy announced robust Q4 and full-year metrics. The novel coronavirus pandemic provided tailwinds for the group’s sales, which reached $7.15 billion in FY20, up 47% year-over-year (YoY). During the year, this top player in the pet space registered 5.7 million new customers, or pet parents. Now it has more than 19 million shoppers. Quarterly net sales came at $2.04 billion, up 51% YoY. Investors were delighted to see an adjusted profit for the first time. They were expecting a loss as in previous quarters.
The stock price is up about 135% over the last year.
CEO Sumit Singh said, “Years of preparation and focus have positioned us as the Internet’s preeminent neighborhood pet store and a leading pure-play e-commerce company in the pet space. We look forward to a future marked by ongoing innovation and to winning customers’ hearts and minds as we grow to become the most trusted and convenient online destination for pet parents (and partners) everywhere.”
Year-to-date (YTD), shares of the online seller of pet items are down about 7%. The stock’s P/S ratio is 4.7. The gradual opening of the economy might mean a drop in online sales for many e-commerce businesses such as Chewy. Therefore, potential profit-taking could pressure the share price toward the $75 level. But as pet parents tend to be loyal customers, interested investors could buy the dips in shares.
Electronics component manufacturer Corning is our next growth stock. It manufactures specialty glass, ceramics and technologies for electronics and telecommunications industries. For instance, its electronics components are widely used in mobile phones, automobiles, data centers and scientific test kits and products.
Corning currently gets significant attention due to its 5G prospects. It provides 5G-ready indoor networks, which analysts see as an important positive sales driver. Apple’s (NASDAQ:AAPL) iPhone 12 also uses its glass and ceramic shields. Investors have been betting that GLW shares will benefit from increased 5G rollout and iPhone sales.
The stock price is up about 133% over the last year.
Corning’s latest results, released in late January, showed strong Q4 and full-year metrics. Sales of $3.3 billion meant an increase of 11% sequentially and 17% YoY. EPS came at 52 cents, up 21% sequentially and 13% YoY. Free cash flow was $464 million. The Street approved of these results. Investors were pleased with strong metrics across all segments.
“We expect year-over-year growth to accelerate in the first quarter of 2021,” Chief Financial Officer Tony Tripeny said. “We expect core sales of $3.0 billion to $3.2 billion – compared with $2.5 billion in the first quarter last year – and EPS of $0.40 to $0.44, which is double last year’s first-quarter EPS at the low end of the range.”
GLW stock’s forward P/E and P/S ratios stand at 22.42 and 3.0. A potential decline toward the $40 level would improve the margin of safety. With a market cap of about $33 billion, this material sciences company is likely to see further growth in the coming years.
Next on this list of growth companies is DOCU stock. Founded in 2003, the San Francisco, California-based group offers electronic signature solutions as well as a range of office-productivity software. It currently has around 900,ooo customers worldwide. Many of the top pharmaceutical and financial companies subscribe to its products.
On March 11, DocuSign released robust Q4 and FY21 results. Quarterly revenue was $430.9 million, up 57% YoY. Of that $410.2 was “subscription” revenue. Professional services and other revenue was $20.7 million. Non-GAAP net income per diluted share was 37 cents on 209 million shares outstanding. A year ago, it had been 12 cents on 194 million shares outstanding. At the end of the quarter, cash and equivalents were $866.5 million.
The stock price is up about 144% over the last year.
CEO Dan Springer said that in FY21, DocuSign grew its “business nearly 50%, reached almost $1.5 billion in revenues, and achieved a record net retention rate of 123%. We believe this performance represents an acceleration of the ongoing trend towards the digital transformation of agreements.”
DOCU stock’s forward P/E and P/S ratios are 156.25 and 26.37, respectively. By traditional valuation measures, these metrics are frothy, even for a growth firm. In the case of profit-taking in April, a move toward $185 would improve the margin of safety for investors in the e-signature and digital-document management leader.
Growth Stocks: DraftKings (DKNG)
Digital fantasy sports and gaming group DraftKings started trading almost a year ago around $20. At the time, it merged with Diamond Eagle Acquisition Corp., a special purpose acquisition company (SPAC) that was already publicly traded and SBTech.
On March 22 of this year, it hit a record high. And now, it is around $62. The Street is currently debating whether the hype in SPAC reverse-mergers might be over in 2021. Right now, DKNG stands out as possibly one of the most successful SPACs of the past year.
In recent months, the company has been increasing partnerships, and striking deals with leagues and broadcasting networks. Both DraftKings and its main rival FanDuel – owned by Flutter Entertainment (OTCMKTS:PDYPF) – are likely to have been the biggest winners of March Madness, one of the largest sports-betting events in the country.
The stock price is up about 410% over the last year.
DraftKings released Q4 and FY20 financial results in late February. Quarterly revenue was $322.2 million, an increase of 146% YoY. FY20 revenue came at $614.5 million compared to 323.4 million in FY19.
Net loss in FY2020 was $844 million, compared to a loss of $142.7 million in FY19. Basic and diluted loss per share in FY20 was $2.76, versus the loss of 77 cents in FY19. Cash and equivalents at the end of FY20 totaled $1.8 billion, an increase of $1.74 billion YoY.
“In the fourth quarter of 2020, we saw MUPs increase 44% to 1.5 million and ARPMUP increase 55% to $65,” CEO Jason Robins said. “We are raising our revenue outlook for 2021 due to our expectation for continued growth, the outperformance of our core business and newly launched states that were not included in our previous guidance.”
To the delight of investors, management increased revenue outlook for 2021 to $900 million to $1 billion, a growth of 40% to 55% YoY, growth. DKNG stock’s P/S and P/B ratios are 28.94 and 8.58, respectively. Although these metrics show an overstretched valuation, the Street likes the growth prospects of the company. Interested investors could regard a drop toward the $55 level as a better entry point.
Invesco Dynamic Semiconductors ETF (PSI)
Semiconductor stocks have recently been in the limelight as analysts debate how different sectors that rely on chips will be affected by the current semiconductor shortage worldwide. Meanwhile, investors have been putting money into chip shares as they believe many semiconductor companies will benefit from the current cycle in the industry.
High demand from many sectors, including automotive, telecoms, 5G, networking, EV, cloud-computing, artificial intelligence (AI), the Internet of Things (IoT), and health care, has been the catalyst behind the secular bull market in the chip space. Growth investors might consider an exchange-traded fund (ETF) such as the Invesco Dynamic Semiconductors ETF.
PSI, which has 32 holdings, tracks the returns of the Dynamic Semiconductor Intellidex Index. The fund began trading in June 2005 and assets under management stand at $595 million.
The stock price is up about 144% over the last year. The fund’s expense ratio is 0.57% per year.
Among the leading semiconductor names in the fund are Applied Materials (NASDAQ:AMAT), Lam Research (NASDAQ:LRCX), Texas Instruments (NASDAQ:TXN), Micron (NASDAQ:MU), Analog Devices (NASDAQ:ADI), and Qualcomm (NASDAQ:QCOM).
So far in 2021, PSI is already up more than 19% and hit an all-time high in mid-February. Thanks to technological trends, I expect the fund to create shareholder value for many quarters.
Spotify Technology (SPOT)
Our next stock from Sweden could be music to growth investors’ ears. Spotify Technology provides digital music-streaming services. In the early days of the pandemic, Spotify’s digital advertising business suffered as its customers cut back on budgets. But things have been looking up recently.
On Feb. 3, Spotify released Q4 and full-year results. Quarterly revenue came at $2.17 billion euros, up 17% YoY. Total monthly active users (MAUs) were 354 million, up from 320 million a year ago. The company saw significant growth in India, followed by the U.S. and Europe. Analysts were pleased that premium subscribers grew 24% YoY to 155 million in Q4.
The stock price is up about 121% over the last year.
Recently, Spotify acquired acquired Betty Labs, the parent company of live-audio app Locker Room, a competitor to Clubhouse. The niche live audio market is still in its infancy. Yet, investors have been excited about the deal.
CEO Daniel Ek has recently said, “Spotify will incorporate a hybrid business model with three distinct parts. One will involve the typical user subscription revenue, another is advertising dollars through its podcast ad marketplace and music streaming ads, and the third is a la carte options, like helping musicians and podcasters sell merch, tour tickets, or even subscriptions to their own content.”
YTD, the SPOT share price declined by 14%. P/B and P/S ratios stand at 15.85 and 5,55, respectively. Despite the frothy valuation, the audio streaming giant is a Wall Street darling. Interested investors could consider buying the pullbacks, especially around $250 or below.
Growth Stocks: Square (SQ)
Over the past 12 months, investor have put their faith in the financial technology (fintech) group Square, which is led by Twitter’s (NYSE:TWTR) co-founder and CEO Jack Dorsey.
Founded in 2009, Square’e ecosystem now provides transactions between merchants and their clients. Its financial and merchant services include a mobile payments platform, as well as hardware such as point of sale (PoS) equipment. Through Square Capital, the business also provides loans to small businesses.
Since October 2020, it has also been investing in the cryptocurrency pioneer Bitcoin (CCC:BTC-USD). Its latest acquisition came in February, when it “purchased about 3,318 bitcoins at an average price of $51,236.”
Square’s Q4 and full-year results announced in February were robust. It generated net income of $213.1 million and $375.4 million for the years ended Dec. 31, 2020 and 2019, respectively. Analysts noted how the pandemic provided further growth, bringing an additional 12 million customers to reach a total 36 million.
The stock price is up about 395% over the last year.
If you agree that Square will continue to be a disruptive company in digital payment technologies as well as the crypto space, you could consider investing around $210. With a market cap of about $104 billion, the company has further room for growth.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.