There were two major reasons for a deep correction in growth stocks in 2022. First, the Fed pursued aggressive contractionary policies and as liquidity dried up on a relative basis, high-beta stocks corrected. Furthermore, earnings revision on the downside in a post-pandemic era impacted several high-flying growth stocks. I believe that 2023 is a period of accumulation. Investors can look at undervalued growth stocks to buy now with an investment horizon of 24 months.
Through financial history, there have been cycles of euphoria and fear. The current down cycle provides investors who have growth stocks with strong fundamentals and earnings that are attractively valued. Once the trend reverses, dozens of undervalued growth stocks will deliver multibagger returns.
My focus is on undervalued growth stocks that have the positive industry tailwinds to support the overall thesis. Let’s discuss the best undervalued growth stocks for 2023.
Pinterest (PINS)
Pinterest (NYSE:PINS) stock has been quietly trending higher in the last six months. PINS stock remains attractive with several potential long-term catalysts.
For Q4 2022, Pinterest reported 4% growth in revenue to $877 million on a year-on-year basis. Globally, monthly active users (MAUs) on the Pinterest mobile app grew 14% year over year, with Gen Z being the fastest growing demographic on the platform. Previously, Pinterest was reporting MAU decline in a post-pandemic era, but this shows that MAUs can stabilize or even swell in the coming quarters.
Another point to note is that the company’s average revenue per user (ARPU) in U.S. and Canada for Q4 2022 was $1.96, up from $1.56 in the previous quarter.
Once the ARPU gap narrows, Pinterest is positioned for healthy upside in revenue and cash flows. The company has been focused on making the platform increasingly shoppable. Higher advertising revenue is likely to help in boosting the ARPU.
Riot Platforms (RIOT)
Standard Chartered believes that the crypto winter has ended and Bitcoin is poised to touch $100,000 by the end of 2024. If this holds true, I expect multibagger returns for some of the quality Bitcoin (BTC-USD) miners. Riot Platforms (NASDAQ:RIOT) stock undervalued with high growth potential.
Riot Platforms has navigated the crypto winter with a quality balance sheet. As of December 2022, the company reported $60.15 million in revenue. Digital assets add to the company’s financial flexibility.
This is important as I expect Riot to pursue aggressive mining capacity expansion if the Bitcoin uptrend sustains. The company already has plans to boost mining capacity to 12.5EH/s in the coming quarters.
Riot is a low-cost Bitcoin miner and with the recent rally in the cryptocurrency, it’s likely that EBITDA margin expansion will be significant. I will not be surprised if RIOT stock delivers 3x to 5x returns in the next 24 months.
Polestar Automotive (PSNY)
Polestar Automotive (NASDAQ:PSNY) stock seems massively undervalued after a correction of 35% for year-to-date 2023. One reason for the deep correction is broad industry sentiments. Another factor is widening EBITDA level losses in 2022 as compared to the prior year.
However, it’s important to note that the company is in an early growth stage. Investment in marketing and product development is likely to be high. The positive is that Polestar reported 80% year-on-year growth in car delivery in 2022. For the current year, the company has guided for deliveries growth of 60% on a year-on-year basis to 80,000 cars.
With Polestar 3 commencing production this year and with the launch of Polestar 4, the outlook is bright for 2024. Further, with operating leverage, EBITDA level losses are likely to narrow. Polestar will have financing requirements, but I don’t see potential equity dilution as a concern. The markets are likely to focus on the company maintaining a healthy growth trajectory.
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.
