- XPeng (XPEV): Robust deliveries growth. New models will ensure that growth sustains through 2023. International market expansion catalyst.
- Pinterest (PINS): Deep correction on growth concerns. However, average revenue per user has been trending higher. Long-term outlook is bright with a big addressable market.
- Marathon Digital (MARA): Best part of growth is still to come for this Bitcoin miner. Company is open to acquisition if the price is attractive.
- Toast (TOST): Growth deceleration discounted in the stock. A big global addressable market makes the stock attractive for the long-term.
Ample research on the psychology of investing indicates that investors overreact on both sides. There are times of extreme euphoria followed by periods of over bearishness. These market sentiments, in general, are reflected more in growth stocks or high-beta stocks.
It follows that growth stocks are subject to phases of overvaluation and undervaluation. One of the best strategies to consistently beat the index and beat inflation is to spot undervalued growth stocks. When the sentiments change, the rally can be sharp and returns robust.
The markets have gone through challenging times in the last few months. Factors like interest rate hikes, inflationary pressure and geopolitical tensions have resulted in relatively depressed sentiments. There have been several growth stocks that have corrected significantly on the back of growth concerns. Some of these stocks already look undervalued as compared to their growth potential.
I believe that it’s a good time to consider some exposure to these undervalued growth stocks. This column will discuss four growth stocks that look attractive as a trading bet as well as for the long-term.
Let’s discuss the reasons that make these undervalued growth stocks interesting at current levels.
|MARA||Marathon Digital Holdings, Inc.||$21.99|
Undervalued Growth Stocks to Buy: XPeng (XPEV)
Among Chinese electric vehicle stocks, XPeng (NYSE:XPEV) seems to be the most attractive name to consider. After having declined by 21% in the last 12-months, XPEV stock looks undervalued. In particular, with the company registering robust growth.
Even with chip shortage concerns, XPeng reported a 263% year-on-year (YOY) growth in vehicle deliveries in 2021. For the first quarter of 2022, the momentum has remained strong with 159% growth in vehicle deliveries.
It’s likely that delivery growth will remain robust through 2022 and 2023. The mass delivery of P5 commenced in October 2021 and will positively impact growth through 2022. Additionally, the company’s G9 SUV is scheduled for deliveries in Q3, 2022. The new model will contribute to growth in 2023.
It’s also worth noting that XPeng reported vehicle margin of 10.9% for Q4 2021. On a year-over-year basis, margin improved by 410 basis points. As deliveries continue to increase, the company is positioned for stronger EBITDA level numbers.
International expansion is another reason to be bullish on XPeng. The company already has presence in Norway, Sweden and Netherlands. With Europe looking to reduce dependence on Russia for energy, the EV segment is likely to gain further traction.
Overall, XPeng is among the top undervalued growth stocks to consider. I expect XPEV stock to double from current levels in the next 12-months.
After some big selling, Pinterest (NYSE:PINS) stock finally seems to be in consolidation mode. I believe that current levels are attractive for exposure and PINS stock is undervalued.
An important point from a growth perspective is as follows – For Q4, 2021, Pinterest reported revenue growth of 11% on a YOY basis in the U.S. markets. However, revenue growth in international markets was 61% for the same period.
At the same time, the average revenue per user (ARPU) in international markets was 57 cents for Q4 2021. The ARPU in the U.S. is significantly higher at $7.43. It’s unlikely that international market ARPU will be anywhere close to the United States anytime soon. However, even if it doubles from current levels, the impact on cash flows will be meaningful.
On the flip-side, global monthly active users have declined on a YOY basis. This was expected as economies opened-up after the pandemic and outdoor activities increased. However, this concern has been discounted in the stock. PINS stock is likely to rally from current levels if the ARPU continues to improve.
One reason to believe that the ARPU will increase is the point that the company is focused on making Pinterest more shoppable. With more shoppable content, the advertiser base is also likely to expand.
Undervalued Growth Stocks to Buy: Marathon Digital (MARA)
With some renewed correction in Bitcoin (BTC-USD), it’s a good time to consider exposure to Bitcoin mining companies. Marathon Digital (NASDAQ:MARA) is an attractive bet and looks undervalued considering the growth potential over the next 12-months.
I must mention at the onset that Marathon’s deployment of miners has been slower than expected. This has depressed the stock. However, Marathon has indicated that deployments will accelerate through the rest of the year. A positive surprise on that front can take the stock higher.
From a growth perspective, Marathon reported mining capacity of 3.9EH/s for March 2022. By early next year, capacity is expected to be ramped-up to 23.3EH/s.
The deployment numbers might be overly optimistic. However, it’s clear that Marathon is positioned for steady growth through the next 12-18 months. Recently, Marathon CEO Fred Thiel also indicated that the company is open for acquisition if it’s at the right price. Any potential acquisition at a meaningful premium can also take MARA stock higher.
Overall, Marathon has been boosting its Bitcoin holding. The company has ample financial flexibility with cash and digital assets of $546.2 million. Once Bitcoin trends higher, MARA stock is likely to outperform.
Toast (NYSE:TOST) stock had surged to highs of $69.93 in November 2021. However, with growth and profitability concerns, the stock has plummeted. At current levels of $18.84, the stock seems to be among the undervalued growth stocks to consider.
For 2021, Toast reported revenue of $1.7 billion. On a YOY basis, revenue increased by 107%. For the current year, the company has guided for revenue of $2.4 billion. Clearly, growth will decelerate meaningfully. However, this factor is discounted in the correction.
Baird analyst David Koning also believes that the overall guidance is “conservative given the growth track and expected margin improvement.” If coming quarterly earnings surprise on the upside, the stock will trend higher.
Another point to note is that the company is currently focused in the U.S. Stiff competition in a limited addressable market has been another worry for investors.
However, the global addressable market for the company’s cloud-based and digital technology platform for the restaurant industry is worth $110 billion. As the company expands in international markets in the long-term, there will be ample scope for growth. TOST stock is therefore attractive and worth considering among the undervalued growth stocks.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.