It’s interesting to observe that some of the sought-after growth stocks in 2021 are being ignored. Even as these stocks have plunged in 2022. This is typical of investor sentiment to chase stocks during euphoria and ignore the same stocks when the market outlook is bearish. I believe that it’s one of the best times to buy undervalued growth stocks.
Of course, earnings revision has triggered a correction besides broad market sentiments. The correction is not irrational. However, the nature of markets is such that reactions tend to be extreme. We have moved from euphoria to fear for growth stocks.
This column will focus on seven undervalued growth stocks that can be long-term performers. In the next five years, these growth stocks can deliver multibagger returns. While I would remain overweight on blue-chip stocks, these undervalued growth stocks will be portfolio catalysts.
Let’s discuss the positive business catalysts for these undervalued growth stocks.
Polestar Automotive (PSNY)
Among electric vehicle stocks, Polestar Automotive (NASDAQ:PSNY) looks undervalued. Recently, PSNY stock surged by 100% from lows of $4. However, the reversal was equally sharp on production and supply chain concerns as covid cases surge in China. The renewed correction seems like an attractive long-term buying opportunity.
For the first nine months of 2022, Polestar reported 30,424 vehicle deliveries. On a year-on-year basis, deliveries surged by 100%. Polestar remains on track to deliver 50,000 vehicles in 2022.
There are two important reasons to believe that deliveries growth will remain robust. First, Polestar 4 and Polestar 5 are due for launch in 2024 and 2025 respectively. Further, the company already has a presence in 27 markets globally. As the addressable market continues to expand, deliveries will accelerate.
Cash burn remains a concern. However, the company is currently funded through 2023. At the same time, cash burn will decelerate with operating leverage. The long-term outlook, therefore, remains positive.
Lucid Group (LCID)
Lucid Group (NASDAQ:LCID) stock is another electric vehicle name that’s seriously undervalued. Over a 12-month period, the stock has plunged by 80%. The key reasons for the downside include lower production guidance for 2022, supply chain headwinds and equity dilution.
Beyond these headwinds, Lucid looks attractive. A key reason to like Lucid is its focus on innovation. The company’s first model was rated by the EPA with a range of 520 miles on a single charge. Lucid Air Sapphire is being touted as the most powerful sedan in the world.
With cash burn likely, financing is a key factor to consider, though following the recent equity dilution, Lucid is funded through 2024. It’s worth noting that the company already has 34,000 reservations for Lucid Air. Additionally, the company’s backlog includes a 100,000 EV purchase commitment from the Saudi government. As supply chain headwinds ease on a relative basis and production accelerates, Lucid is well positioned to surge from current levels.
Pinterest (NYSE:PINS) stock had already bottomed out. In the last six months, the stock has trended higher by 31%. I believe that the stock remains undervalued and is poised for a further rally in 2023.
One good news from the company’s metrics is that monthly active users have stabilized. Further, the average revenue per user trend in the United States has been positive in the last two quarters. It’s also worth mentioning that the ARPU (excluding U.S. and Europe) is significantly low as compared to the global average. There is ample scope for growth in ARPU in emerging markets.
Pinterest has been investing heavily in research and development. The company’s R&D investment has been around 25% of revenue in the last few quarters. These investments are directed towards platform development and making it shopping friendly. With global reach and higher advertising revenue, Pinterest is likely to be a long-term cash flow machine.
Albemarle Corporation (ALB)
Albemarle Corporation (NYSE:ALB) is another undervalued growth stock that’s poised for a surge from current levels. At a forward price-earnings ratio of 11.5, the stock can potentially double in the next 24 months.
As the world faces a tight demand-supply scenario for lithium, Albemarle is positioned to benefit. The company derived 60% of sales from the lithium segment in Q3 2022. Further, the company’s revenue surged by 152% on a year-on-year basis on higher price realization. Revenue growth was also associated with a strong upside in EBITDA margin.
Albemarle is also positioning itself for sustained growth. From last year’s lithium conversion capacity of 80ktpa, the company expects to boost capacity to 200ktpa by the end of the year. Capacity addition is likely to sustain through 2030. This provides visibility for cash flow upside.
It’s also worth noting that ALB stock offers an annualized dividend of $1.58. The possibility of robust dividend growth is a bonus.
Riot Blockchain (RIOT)
For investors with a high-risk appetite, Riot Blockchain (NASDAQ:RIOT) stock looks seriously undervalued. The Bitcoin (BTC-USD) miner has plunged as the crypto winter extends. However, Riot is fundamentally strong and positive business developments have continued.
For November, Riot reported a hashing capacity of 7.7EH/s. The company plans to boost capacity to 12.5EH/s by Q1 2023. This is one reason to be bullish. As capacity increases, the company’s digital assets will swell.
In terms of fundamentals, Riot has zero debt and a cash buffer of $255 million. Additionally, the company reported holding 6,897 Bitcoin in its balance sheet. This provides Riot with ample financial flexibility to navigate challenging times.
It’s also worth noting that Riot reported a gross mining margin of 65.4% year-to-date. Being a low-cost miner is a big advantage. Once Bitcoin trends higher, EBITDA margin is likely to be robust.
Curaleaf Holdings (CURLF)
News continues to be mixed for the cannabis industry. However, there is hope that cannabis will be legalized at the federal level. I would therefore hold cannabis growth stocks in my portfolio. Curaleaf Holdings (OTCMKTS:CURLF) stock looks attractive after a correction of 54% year-to-date.
One reason to like Curaleaf is the company’s presence in 22 states in the U.S. The company has also been increasing its international presence. In a federal-level legalization scenario, multi-bagger returns can be expected.
Curaleaf also has a significant focus on research and development. Currently, the company has 180 experimental products under development. With a strong pipeline, the revenue growth outlook is robust.
While most cannabis companies are struggling with cash burn, Curaleaf has consistently reported positive adjusted EBITDA. With operating leverage, Curaleaf is positioned for healthy cash flows in the coming years.
Coupang (NYSE:CPNG) is another stock that has bottomed out earlier this year. In the last six months, the stock has trended higher by 28%. However, CPNG stock looks undervalued considering the outlook in terms of margin and addressable market.
Coupang has a dominant presence in Korea. However, the company still believes that its catering to only 50% of Korean online shoppers. Additionally, the company is expanding internationally, which will also ensure that revenue growth sustains.
For Q3 2022, Coupang reported a product commerce EBITDA margin of 4.8%. On a quarter-on-quarter basis, margin expanded by 280 basis points. I expect EBITDA margin expansion to continue in 2023 with operating leverage. This is a positive catalyst for CPNG stock.
Coupang is also well-positioned from a financial perspective. The company closed Q3 2022 with cash and equivalents of $2.9 billion. Once margin expansion translates into higher operating cash flows, the stock will be due for rerating.
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