- As investors in recent months turned bearish momentum on growth stocks, several are at too-cheap levels, creating entry opportunities ahead of a parabolic move over the next year.
- Marvell Technology (MRVL): Strong cloud demand and growing market share make MRVL a great growth stock from current levels.
- Li Auto (LI): With a solid cash position and a sturdy top-line growth, the electric vehicle stock is close to profitability, providing support for its shares.
- Zscaler (ZS): Robust demand for cloud security solutions, will continue to sustain ZS’s rapid top-line growth
- Bill.com (BILL): The strong top-line growth expected this year and the constructive Wall Street analyst view could make this stock go parabolic in the next year.
- Cloudflare (NET): The globally diversified cloud specialist has sufficient cash on hand and is enhancing EBITDA and bottom-line figures.
- RingCentral (RNG): RNG’s stock correction is an opportunity to get on board this leading cloud communication company.
- Coinbase (COIN): The cryptocurrency exchange underperformed its market and is expected to turn a profit in 2023, providing tailwinds for the stock
Growth stocks are often expensive in terms of valuation multiples, but if expectations are matched these stocks can generate sturdy capital gains. These stocks grow at a faster clip than their respective markets and can be great long-term investments.
Growth stocks are also associated with high risks, that can trigger powerful drawdowns if the companies miss market growth expectations. Besides, some companies focus on growing revenues at any cost, which can be unproductive, especially in today’s equity market.
In the past few months, investors walked away from growth stocks, preferring to invest in value stocks that tend to resist better in monetary tightening and inflationary economic conditions. This has accentuated the bearish momentum on these investments, creating opportunities to buy growth stock at cheaper prices.
In this context, here is a selection of stocks that could go parabolic by 2023.
|MRVL||Marvell Technology, Inc.||$61.06|
|LI||Li Auto Inc.||$22.12|
|BILL||Bill.com Holdings, Inc.||$182.70|
|COIN||Coinbase Global, Inc.||$122.69|
Marvell Technology, Inc. (MRVL)
Marvell Technology (NASDAQ:MRVL) specializes in designing and marketing integrated communications and storage circuits intended for manufacturers of high-speed network equipment, hard disk, and consumer electronics. Since the beginning of the year, MRVL stock dipped 33.72% to $59.20 per share, after investors dumped the growth stock. Nevertheless, Marvell recently announced that it has more than doubled Cloud Data Center Ethernet Switch Port Shipments over the year, reaching a record high market share of 31% in Q4 2021.
Despite this poor performance, Marvell is expected to grow fast in the next two years, as demand for its cloud solutions remains sustained. Net sales are projected to advance 50.3% to $4.46 billion in 2022 and 46.7% to $6.1 billion in 2023.
On the other side, MRVL’s bottom line is estimated to weaken in 2022, posting a net loss of $421 million, before rebounding solidly in 2023 to $291 million. With this rebound, net margins are projected to advance to 4.76% per year, boosting MRVL’s stock price. Besides, the tech company is well balanced, with net debt of only $444 million in 2021, representing a low leverage ratio of 0.48x.
Moreover, analysts are bullish on the growth stock, offering a 12-month average target price of $91.2 or 57.59% appreciation potential. The valuation metrics of the company are however quite stretched, with a forward EV/EBITDA of 20.4x and a price-to-book multiple of 3.02x.
Li Auto Inc. (LI)
Li Auto (NYSE:LI) is a China-based new energy vehicles (NEV) maker principally engaged in the design, development, manufacture, and sales of smart electric cars. LI stock value has shrank more than 30% year-to-date to $22.12 per share, following declining investor interest in Chinese tech stocks prompted by Beijing’s crackdown on the industry.
Despite these impending regulatory risks, LI Auto has grown at a fast clip in the past years and is expected to continue on this path. Revenues are projected to lift by 93.2% in 2022 to CNY 52.1 billion ($7.86 billion) and by 69.2% to CNY 88.2 billion in 2023.
The company remains unprofitable, with an expected net loss of CNY 691 million in 2022, nevertheless, analyst projections indicate that it should turn things around in 2023, posting a net income of CNY 1.52 billion. If the Chinese EV giant maintains this guidance, the growth stock could go parabolic in 2023, providing strong support for the stock.
Besides, Li Auto has sufficient cash on hand to deliver on its growth prospects, with a net cash position of CNY 10.6 billion at the end of 2021. Despite that and even if the stock declined by more than 30% over the year, LI stock is expensive, exchanging at a massive forward EV/EBITDA of 282x and a 2022e P/B ratio of 3.74x.
Analysts maintain a constructive view on LI stock, offering a target price of $42.24 per share, an upside of 96.37% from today’s price.
Zscaler, Inc. (ZS)
Zscaler (NASDAQ:ZS) is a cloud security platform, designed on a zero-trust architecture. ZS stock lost 29.94% year-to-date to $209.02 per share, providing a cheaper entry point for investors looking to enter this fast-growing company. The cloud specialist released a research report earlier this month, showing a 400% increase in the past 12 months of phishing attacks on retail and wholesale industries.
With these findings, ZS’s cloud security solutions should get a boost, sustaining its fast top-line growth. In 2021, Zcaler’s net sales advanced rapidly, up 56.1% to $673 million. Going forward, revenues are estimated to grow 56.3% to $1.05 billion this year and 36% to $1.4 billion in 2023.
The bottom line is expected to deteriorate this year, posting a net loss of $372 million versus $262 million last year. Despite that, ZS’s EBITDA is projected to advance at a fast rate this year, up 28.7% to $139 million. In addition, the company has sufficient cash to grow its activity, with a net cash position of $589 million at the end of 2021 that is expected to increase 20.5% in 2022 to $710 million.
The growth stock has a moderate buy rating according to Wall Street analysts and the average target price stands at $311.22 per share offering a potential upside of 45.41%. The cloud security stock is however expensive, exchanging at 202x forward EV/EBITDA and 49.8x 2022e P/B.
Bill.com Holdings, Inc. (BILL)
Bill.com (NYSE:BILL) is a leading provider of cloud-based software that simplifies back-office financial operations for small and midsize businesses (SMBs). Since the beginning of the year, BILL stock declined more than 20% to $182.70 per share, amid tough market conditions for tech stocks and growth stocks.
The growth stock was beaten by the market participants due to weak profitability. BILL’s net loss reached $987 million in 2021, but is expected to reduce to $308 million this year. The software company is however growing at a fast clip. After growing 50.6% to $238 million in 2021, revenues are projected to bounce 149.6% to $594 million in 2022 and by another 35.7% to $806 million in 2023.
Besides, Bill.com has a comfortable balance sheet. The net cash position of the company is expected to reach $1.03 billion this year, providing a wide cushion of security to extend its operations in the next years.
Recently, insiders sold a chunk of BILL stock, indicating that the company continues to be overvalued. This is not a surprise given that the company trades at elevated multiples, posting a forward EV/revenue of 28.4x and 2022e P/B of 4.65x.
Cloudflare (NYSE:NET) is a global cloud services provider that delivers a range of services from security to software-as-a-service applications. NET stock lost 28.19% year-to-date to $90.59, outpacing the decline of tech stocks.
Cloudflare’s top-line growth is projected to remain solid in the next two years. Net sales are expected to jump 42.1% to $932 million this year and 32.7% to $1.23 billion in 2023. The bottom line of the cloud service specialist is also expected to improve. After posting a net loss of $260 million in 2021, NET is projected to reduce yearly losses to $189 million this year. Despite that, Cloudflare is expected to nearly double EBITDA this year to $103 million, offering a positive operating margin of 1.35% over the year.
The company had a healthy cash position of $663 million at the end of 2021. However, Cloudflare’s multiples remain elevated, with a 2022e EV/revenue of 31.1x and a P/B ratio of 40.2x. Besides and even if NET stock is expected to remain profitless in the next two years, analysts are bullish on the rapidly growing stock, delivering an average target in the next 12 months of $153.44 per share, representing an upside of 69.38%.
RingCentral, Inc. (RNG)
RingCentral (NYSE:RNG) is one of the leading providers of Unified Communications as a Service (UCaaS) solutions, providing global enterprise cloud communications, video meetings, collaboration, and contact center software-as-a-service (SaaS) solutions. RNG stock plunged 56.44% since the beginning of the year to $83.82 per share, establishing the worst performance of our selection of growth stocks.
Despite that, the company beat earnings per share and revenue estimates in the last four quarters, indicating a strong execution for this tech company. RNG is growing at a rapid pace. After expanding 34.7% to $1.59 billion in 2021, revenues are projected to advance another 26.1% in 2022 to $2.01 billion and by 24.4% to $2.5 billion the following year.
The bottom line of the company however expected to deteriorate in 2022, posting a net loss of $437 million versus a yearly loss of $376 million last year. Moreover, RNG stock is the most leveraged of our list of growth stocks. Net debt established at $1.13 billion in 2021, representing an elevated leverage ratio of 5.14x, nevertheless, analysts expect a reduction in RingCentral’s debt this year, down 10.9% to $1 billion.
In addition, RNG stock has high valuation metrics, exchanging at a forward EV/EBITDA of 36.5x and a P/B of 13.1x. Yet, Wall Street analysts are constructive on the equity story, offering an average target price of $211.59 per share, an upside of 152.43% from today’s close.
Coinbase Global, Inc. (COIN)
Coinbase (NASDAQ:COIN) is a financial technology company that provides end-to-end financial infrastructure and technology for the crypto economy. COIN stock plunged more than 50% year-to-date to $122.69 per share, outpacing the consolidation of cryptocurrency assets and growth stocks.
Revenues of the cryptocurrency exchange platform are expected to moderately decrease this year, down 7.7% to $7.23 billion, but are estimated to rebound in 2023, up 19.2% to $8.63 billion. After registering a solid year in 2021, with a net profit of $3.62 billion, corresponding to a net margin of 46.2%, analysts expect COIN stock to deliver a net loss of $271 million, explaining the sharp decline in its market capitalization.
Despite that, net income is projected to turn positive in 2023, and with the volatility in cryptocurrency assets, COIN stock is a buying opportunity at these prices. Moreover, Coinbase is well-capitalized, with a net cash position of $3.3 billion in 2021, which is forecasted to advance robustly this year, up 47.4% year-on-year to $4.88 billion.
In addition, analysts give a moderate buy for the cryptocurrency specialist and offer an average target price of $275.70 per share, representing an appreciation potential of 125.02% in the next 12 months.
On the date of publication, Cristian Docan did not have (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.