With the market rallying hard lately, it’s easy to think every stock is participating in the gains. But look a little closer, and you’ll see the rally has been very narrow. Most of these gains have been concentrated heavily in the FAANGs and AI darlings like Tesla (NASDAQ:TSLA) and Nvidia (NASDAQ:NVDA) . Many other high-growth companies doing just as well (if not better!) have been left behind.
This creates a massive opportunity today for investors willing to venture beyond the crowd favorites. While the market chases the hot momentum stocks, diamonds in the rough are there for the taking. These are stocks worth buying before their share prices catch up to reflect their full value.
Here are three growth stocks trading at a massive bargain to snap up right now.
Evolution (EVVTY)
Evolution (OTCMKTS:EVVTY), the Swedish provider of online casino solutions, has seen its stock tumble over 45% from its 2021 peak. However, the company’s business fundamentals remain strong, with Q2 revenue up 28% year-over-year. Evolution’s EBITDA also increased 31% to €312 million, representing an impressive margin of 71%.
While revenue growth slowed from Q1, Evolution continues expanding globally with new studio launches planned in Colombia and elsewhere in Latin America. The company is also gearing up to release over 100 new games in the back half of 2023, including potential hits like Lightning Lotto.
Despite growth hiccups, analysts still expect 23% revenue growth in 2023 and 20% in 2024. With the stock trading at a forward price-earnings ratio of just 20-times, I believe most negativity is overdone or priced into this stock. Evolution still has a long runway for growth in Europe, Asia, and the fledgling U.S. iGaming market. Gurufocus’ $194 2024 fair price tag implies nearly 90% upside. Indeed, this fallen angel looks like a strong turnaround play to me.
SurgePays (SURG)
SurgePays (NASDAQ:SURG) stock been wobbling over the past year, as investors worry about potential changes to the Affordable Connectivity Program (ACP) that has driven much of the company’s growth. However, the SurgePays just delivered record Q2 results, including $6 million in net income and $35.9 million in revenue, up 28% year-over-year. The latter metric did miss by $3.16 million, but I believe that has been more than priced in.
More importantly, SurgePays is mitigating ACP risk by expanding its distribution network and product portfolio. Partnerships with the likes of LeadEx and Boys & Girls Clubs position the company to drive additional ACP subscribers while reducing acquisition costs.
Meanwhile, the planned rollout of its own prepaid wireless brand and additions like customer-facing LCD screens at convenience stores will reduce reliance on ACP. SurgePays now targets 13,000 stores on its platform by year-end, which will double its reach. Thus, the negativity appears to be fully priced in with SURG stock, as it trades at just 3.7-times 2023 earnings projections.
Maxim Group has a lofty $15 price target for the stock, implying over 200% upside potential in a year. If the company executes on its growth plans, SURG stock could deliver explosive returns from today’s depressed levels. This looks like a deep value play in the making. Its price-sales ratio also comes in at 0.46-times, which is very low for a company expected to pull well above 20% top-line growth per year.
ResMed (RMD)
ResMed (NYSE:RMD) is a global leader in digital health and cloud-connected medical devices. The company focuses on sleep apnea, chronic obstructive pulmonary disease (COPD), and other respiratory conditions. The last 18 months have been rough for ResMed. After peaking near $300 per share in mid-2021, shares of RMD stock have traded sideways for all of 2023, recently tumbling nearly 35%.
Indeed, that’s the reason it’s at the bottom of today’s list. But I believe there is tremendous long-term potential here.
First, let’s figure out why the stock dropped in the first place. ResMed narrowly missed revenue expectations by $17.4 million, delivering $1.12 billion in revenue (up 22.7% year-over-year) and $1.60 in earnings per share (up ~17% year-over-year) missed by 9 cents. This does look bad, but does this warrant the company’s valuation being wiped by one third? Nope.
In reaction, the company went ex-dividend last month, but that still wouldn’t turn me away from this clear bargain. The average price target of $235 now implies 59% upside in one year, and even the lowest price target of $170 will deliver great upside. Personally, the risk seems worth the potential reward, in this case.
On the date of publication, Omor Ibne Ehsan 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.
