If you’re just getting into the investing game, growth stocks are a great place to get started. As the name suggests, these are stocks of companies that are poised for exponential growth. However, this also means they are often smaller and still in the developmental stages. While profitability may be low in the short term, the future potential of these investments makes it a great opportunity to buy in before valuations soar.
Growth stocks are often considered to be a safety net. These investments are particularly attractive during periods of economic downturn as they show promise of higher than average returns in the future. According to Jim Paulsen, a chief investment strategist at Leuthold Group, growth stocks have historically outperformed in both rising and falling markets.
On the heels of a strong earnings season this year, many investors are now looking to get in on the market momentum. As a result of this, growth stocks are now gaining traction after months of economically driven volatility. Here are seven stocks headed for the moon.
- Shopify (NYSE:SHOP)
- PayPal (NASDAQ:PYPL)
- Tesla (NASDAQ:TSLA)
- Snowflake (NYSE:SNOW)
- Upwork (NASDAQ:UPWK)
- Peloton (NASDAQ:PTON)
- Etsy (NASDAQ:ETSY)
Growth Stocks: Shopify (SHOP)
First up on the list is Shopify. The e-commerce giant had a spectacular run in the last 12 months but is poised for greater upside in the coming years.
In the wake of the novel coronavirus pandemic, Shopify’s platform served as a lifeline for small businesses forced to move online. The company allows small to mid-sized businesses to set up digital storefronts and connect with customers. As a result of traffic on the platform, the company reported a gross merchandise volume of $119.6 billion in 2020 – a 96% increase from the previous year.
Coming into 2021, Shopify stock remained volatile in the first half of the year amid a mass-market sell-off. But the e-commerce revolution is far from over. The company boasts more than 1.5 million users on its platform and this number will only continue to grow.
Although in-store shopping will eat into Shopify’s market share, online retail is a pandemic trend that won’t go away anytime soon. Research shows that e-commerce is growing in the U.S., accounting for for 6% of total sales nationwide in 2013. And this value is expected to hit 19% by 2024.
Shopify stock is down from its peak pandemic highs, but this growth stock is worth betting on for the long haul.
Digital payments defined the pandemic year as cash lost its allure amid mass social distancing. This meant that payment platforms once seen as a convenience were now deemed a necessity. The fintech industry is crowded but PayPal, one of the oldest players in the space, holds a strong competitive advantage. And while many are questioning its growth prospects in a post-pandemic world, I think the stock is in a great position to keep growing. This is because, like online shopping, digital payments are a trend that won’t go away.
As of the fourth quarter 2020, PayPal had 377 million user accounts and 29 million merchants worldwide. This resulted in net revenue of $6.12 billion for the year. In 2021, the company hopes to add 50 million new accounts and sees revenue hitting the $50 billion mark by 2025. A combination of digital payment trends in its favor and a strong market position support this guidance.
Adding on to these tailwinds, PayPal recently announced that it will allow users to trade store cryptocurrencies on its subsidiary platform, Venmo. As digital currencies go mainstream, this crypto offering could be a major revenue generator for the company.
With a growing customer base and history of constant innovation, PayPal is a growth stock that will thrive in the new normal.
Growth Stocks: Tesla (TSLA)
The growth potential of electric vehicles (EVs) has many investors bullish on the biggest names in the sector. Leading this trend is Tesla. Shares of the company trade at about 23.5 times its revenue, making it one of the most expensive stocks on the market. But the potential tailwinds for Tesla justifies this price.
In its most recent earnings report, the company posted net revenue of $10.39 billion, up 74% from a year ago. EPS also beat expectations at 93 cents/share. However, deliveries hit a speed bump due to supply chain issues but the company is working toward improving its production capabilities.
Looking ahead, Tesla’s CEO Elon Musk says they will begin deliveries of its Model S sedans this month. Deliveries are expected to increase by 50% in 2021 or an additional 750,000 vehicles. The company is also working to improve the mechanics of its cars. It believes that the new autonomous vehicle will be vision-based with the use of AI-based cameras. According to the EV maker, they are “ready to switch the market to Tesla Vision.”
Tesla is an expensive growth stock but with EVs poised to go mainstream in the coming years, this investment will generate ample returns.
Cloud-based solutions are another major area of growth in the future. One company that shows a lot of upside potential in the sector is Snowflake. The shift to a digital environment has served as a major tailwind for cloud infrastructures. Companies like Snowflake help businesses manage and store their data remotely. This service became crucial for many businesses during the pandemic.
As for the numbers, Snowflake is still in its growth stages and continues to burn through large amounts of cash. However, the company did report a 120% increase in product revenue at $553.8 million. Once Snowflake surpasses this phase, its services should generate some juicy returns. The company’s biggest selling point is its pay-as-you-go model that’s packaged as a subscription as a service (SaaS) model. Solutions such as these can help companies lower costs as they achieve greater economies of scale.
Snowflake’s competitive market position and lucrative subscription model make this stock a great buy for the long haul.
Growth Stocks: Upwork (UPWK)
As a result of pandemic-induced layoffs and furloughs, many people took to freelancing to make some extra cash. For Upwork, a platform that connects businesses to freelancers, user growth surged as a result. Given its dominant position in the market, the company stands to gain the most from the gig-economy trend. To put this in numbers, shares of Upwork are now up some 400%, trading at around $37 from a low of $8 a year ago.
It’s worth noting that while the company reported a major surge in revenue, it is not yet profitable. This alludes to the fact that the gig economy is still very much in its early stages and Upwork chooses to focus on growth and not profitability. Going into 2021, Upwork will continue to follow this ethos and predicts revenue will grow by 24.91%. Assuming revenues grow in accordance with the forecast, investors are likely to see an appreciation in the share price this year.
As far as growth stocks go, Upwork is a top play. The winds of the gig economy are blowing in the company’s favor and explosive returns are definitely in the forecast.
Riddled with supply chain issues and questions about its future, shares of fitness giant Peloton are on the decline. However, experts see this dip as a great buying opportunity. The pandemic was a boon for Peloton as people purchased the company’s exercise bike to stay fit indoors. As a result, revenue doubled to $1.06 billion for the quarter ended on Dec. 31, 2020.
But this success was threatened as the company faced numerous supply chain issues and struggled to meet the explosive demand. Adding to the negative publicity over delayed orders and treadmill issues, Peloton’s growth prospects post-pandemic came into question.
However, several reasons hint at Peloton’s long-term success, making this dip a great buying opportunity. For instance, the remote fitness trend brought about by the pandemic is one that is here to stay. Experts believe that people will continue to embrace remote workouts even after gyms reopen. For Peloton, a major player in the space, this provides an opportunity for long-term growth. Peloton is optimistic about its success in the new normal and forecasted revenue of $4 billion for FY21.
Despite the short-term headwinds, Peloton is a growth stock that’s worth banking on. Its strong market position and favorable trends in the fitness industry will help PTON pedal higher.
Growth Stocks: Etsy (ETSY)
E-commerce was a major area of focus during the pandemic and with good reason. For many years, in-store shopping was on the decline as people preferred to shop online. The pandemic-induced lockdowns accelerated this to a whole new level. Hence, it’s safe to assume that e-commerce is here to stay long after the pandemic. This trend bodes well for Etsy, a platform that caters to small artisanal businesses.
Etsy is a platform for independent sellers, many of whom have no physical storefront. As an all-purpose enterprise for small businesses, the company saw a massive hike in the number of sellers on its platform during the pandemic. In 2020, sellers on Etsy rose by 62% to 4.4 million and 81.9 million people purchased products on the website. The resulted in a revenue hike of 111%.
As we approach the new normal, it is unlikely that we will see such explosive results. But looking at the long-term prospects, Etsy has a strong value proposition. As one of the biggest platforms for independent sellers, the company’s market competitiveness will lead to higher returns in the future.
The future of retail is online, making Etsy a growth stock to have on your radar.
On the date of publication, Divya Premkumar held a long position in SHOP stock and PYPL stock. She did not hold (either directly or indirectly) any positions in the other securities mentioned in this article.
Divya Premkumar has a finance degree from the University of Houston, Texas. She is a financial writer and analyst who has written stories on various financial topics from investing to personal finance. Divya has been writing for Investor Place since 2020.