When analysts value companies, the most used method is discounted cash flow. In this, analysts estimate the future cash flows that are discounted to the present value based on the weighted average cost of capital. It therefore goes without saying that high free cash flow stocks can be massive value creators. Thus, we cobbled together some of our favorite growth stocks to buy.

The focus of this column is on growth stocks that are likely to see multi-fold growth in operating and free cash flows. These growth ideas can be potential blue-chips of tomorrow. The key is to identify cash flow machines at an early-stage. Once the potential is recognized by the markets, these stocks are unlikely to trade at a valuation gap.

I must therefore add here that the high free cash flow stocks discussed are attractively valued. This magnifies the potential for upside with a long-term investment horizon. Let’s discuss the business factors that are likely to support growth and value creation.

Top Growth Stocks to Buy: Li Auto (LI)

The electric vehicle industry is going through a challenging phase. Macroeconomic headwinds, intense competition, and slower than expected adoption of EVs have soured sentiments. However, these are temporary factors and provide an opportunity to investors to buy quality EV stocks for the long term.

In my view, Li Auto (NASDAQ:LI) has witnessed an unjustified sell-off in the recent past. After a correction of 45% for year-to-date, LI stock trades at a forward P/E of 18.7. Considering the fundamentals, I am bullish on a strong reversal.

The first point that I want to mention is that Li Auto reported free cash flow of $6.22 billion in the last financial year. With margins likely to be impacted due to intense competition, FCF for 2024 can be relatively subdued. However, the last financial year provides an indication of the potential the business holds.

I must add that Li Auto is operational only in China. The company’s laser focused strategy has helped in controlling cost. However, international expansion is likely in the coming years and will support deliveries growth coupled with cash flow upside.

Pinterest (PINS)

Pinterest (NYSE:PINS) was among the hottest stocks during the euphoria of 2021. However, with growth adjusted in a post-pandemic world, the proxy e-commerce stock plunged. With relatively low investor attention, PINS stock has trended higher by 56% in the last 12 months. I believe that the positive momentum is likely to sustain as business metrics improve.

For Q1 2024, Pinterest reported monthly active users (MAU) of 518 million. It’s worth noting that MAUs have been increasing on a consistent basis. At the same time, the average revenue per user (APRU) was $1.46 in Q1 2024 as compared to $1.32 in Q1 2023.

What’s important to note is that the ARPU for U.S. and Canada was $$6.05. However, the ARPU was Europe and rest of the world was 86 cents and 11 cents respectively. I see headroom for significant ARPU growth in emerging markets. Therefore, even with a stable MAU, revenue and cash flow upside is likely.

For 2023, Pinterest reported healthy operating cash flows of $613 million. With potential upside in ARPU and a positive active user trend, I expect OCF to swell. For a business that’s not capital intensive, the free cash flow is likely to be significant. You can see why we chose this for our list of the top growth stocks to buy.

Amdocs (DOX)

Amdocs (NASDAQ:DOX) seems to be undervalued and is under-the-radar. However, the provide of software and services to the telecommunication and media industry, has immense growth and cash flow upside potential. From a valuation perspective, DOX stock trades at an attractive forward P/E of 12.1. Further, the stock offers a dividend yield of 2.44%.

For Q2 2024, Amdocs reported record revenue of $1.25 billion and a record 12-month backlog of $4.23 billion. While year-on-year revenue growth has been subdued, the business has robust cash flow potential. Amdocs has guided for free cash flow of $700 million for the year.

In my view, areas of 5G monetization, digital modernization, and cloud services, will help in accelerating growth. As a matter of fact, the cloud business reported double-digit revenue growth for Q2 2024. During the quarter, the company signed a five-year deal with AT&T (NYSE:T) in a new cloud domain. Long term contracts are likely to ensure that the backlog continues to swell. If you are looking for the top growth stocks to buy, start here.

On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.

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.