Growth stocks, particularly of technology companies, have been hurt this year as investors sell them and move into value and cyclical stocks that are leading the economic reopening coming out of the global pandemic.
However, while beaten down, growth stocks should not be completely written off. There are many great growth stocks whose share prices have been beaten down despite reporting blowout quarterly results, having strong balance sheets, and providing positive forward guidance.
Many of the hardest-hit growth stocks have been of companies that are leaders in their respective markets and sectors.
Rather than stay away from growth stocks, investors should see many of the biggest names as offering attractive entry points at current prices. Here are four of the best growth stocks currently flying under the radar.
Best Growth Stocks Flying Under the Radar: Square (SQ)
Fintech companies such as Square performed well at the start of this year and even got a boost from the rise in value of cryptocurrencies such as Bitcoin (CCC:BTC-USD). But then came the rotation out of technology growth stocks and into shares of value and cyclical companies.
Suddenly companies such as Square, which offers payment and point-of-sale solutions, were out of favor with investors. As a result, SQ stock has fallen more than 30% from a high of $283.19 to its current price of around $197.
Despite the downturn, Square remains a stellar growth stock with sound fundamentals and a bright future. The company’s revenue has grown at a compound annual growth rate (CAGR) of 50% over the past five years, and the company reported that in this year’s first quarter its revenue increased 44% year-over-year.
Much of the success can be attributed to Square’s popular “Cash App,” which is its mobile payments app. In the first quarter, Cash App’s profits rose 170% year-over-year, accounting for more than half of Square’s $964 million profit.
Square now has a market capitalization of $95 billion, and analysts forecast that its earnings per share will grow by more than 50% annually in each of the next five years. Buy SQ stock now.
Roku (ROKU)
Streaming TV platform Roku is another growth stock that has fallen on hard times but offers tremendous upside potential. Also caught up in the tech wreck of 2021, ROKU stock has fallen 36% since mid-February.
This despite the fact that the Los Gatos, California-based company reported blowout results for the first quarter as advertisers increasingly move money into streaming platforms and programs.
For the first quarter, Roku reported its highest quarterly revenue growth since going public, up 79% to $574 million. Platform revenue, which includes advertising, was up 101% at $466.5 million.
Active accounts grew 2.4 million from the fourth quarter to reach 53.6 million. The impressive performance sent ROKU stock up 19% and gave the share price a much-needed boost. However, Roku still remains deeply discounted at its current share price.
Analysts expect the company to turn profitable next year (2022). The addition of HBO Max to Roku’s platform should help drive results moving forward.
Best Growth Stocks: Fiverr (FVRR)
Fiverr, which runs an online platform that connects freelance workers with people and organizations looking to hire them, has been lumped in with the stay-at-home trade and as a pandemic growth stock.
Consequently, its share price has been hurt this year as the global economy reopens and life returns to a more normal cadence. After growing a staggering 470% over the past 12-months, FVRR stock has fallen more than 50% since February, from a peak of $336 to $165 per share.
The deprecation of FVRR stock is unfair given the company’s financial performance and future growth prospects. A growing number of companies continue to use Fiverr to hire freelancers who work in areas ranging from design and marketing to translation and programming.
The company turned profitable in 2020 and its earnings continue to outperform analysts’ expectations. For this year’s first quarter, Fiverr’s revenue rose 100% from a year earlier. The company also raised its forward guidance for full-year revenue growth to 59-63% from 46%-50% previously.
Nvidia (NVDA)
Demand for the microchips developed by Nvidia has never been greater. The Santa Clara, California-based company manufactures the microchips used in mobile computing and automobiles, as well as the graphics cards that power video games.
There is a global shortage of microchips and semiconductors that power today’s vehicles and personal technology. Nvidia’s sales were robust before the chip shortage, but have only grown as automotive and technology companies scramble to meet demand and keep production on track.
One of the strongest growth stocks during the global pandemic, Nvidia shares are down since hitting an all-time high of $648.57 in mid-April. NVDA stock now trades at $546.
Part of the decline has been due to lingering uncertainty regarding the company’s acquisition of computer chip designer Arm Holdings, which is subject to regulatory approval in several countries. While several hurdles still need to be cleared, Nvidia remains confident that the deal will conclude in its favor.
When Nvidia reports its latest earnings on May 26, analysts forecast earnings per share of $2.61, up from $1.48 reported in the year-earlier quarter.
On the date of publication, Joel Baglole held long positions in SQ and NVDA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
