2 growth stocks with a monstrous rise of at least 145%, according to Wall Street
heavy growth Nasdaq Compound has dipped in and out of bear market territory this year. Many investors fear that the combination of runaway inflation, geopolitical strife and rising interest rates will cause a major drop in spending. This, in turn, would negatively affect business revenues and profits. So, to minimize short-term risk, many investors sold stocks, especially highly valued growth stocks.
However, some analysts believe the sale is overdone. For example, Daniel Kurnos of investment banking firm Benchmark has a price target of $305 on Roku ( ROKU -2.07% ), implying a 166% upside from its current price. In the same way, JMP Titles analyst Devin Ryan has a price target of $394 on Coinbase global ( CASH -3.16% )which implies an increase of 145% compared to its current price.
Given these analysts’ bullish outlook, let’s take a closer look at both stocks.
For millions, Roku has become the gateway to streaming entertainment. In fact, its platform generated nearly 32% of “big screen” (or TV) viewing time last year, up 70 basis points from 2020. Amazon Fire TV captured just 16.5% market share, down 270 basis points from a year earlier. In other words, Roku is becoming more dominant, while its closest competitor is losing ground.
What explains this success? The direction points to its operating system. Roku OS is the only operating system designed specifically for television. Competing solutions such as Amazon’s Fire OS are modified versions of a mobile operating system. Roku believes its purpose-built approach creates a better viewing experience. CEO Anthony Wood recently said, “If you look at the history of computing platforms […] Purpose-built operating systems have traditionally always won in terms of market share.”
Additionally, Roku has also invested in its ad-supported streaming service, The Roku Channel. She has released over 50 original titles in 2021, including her feature debut. With this strategy, Roku aims to boost viewer engagement (and ad spend) by further differentiating its platform. The first results are promising. In 2021, half of The Roku Channel’s top 10 titles were Roku Originals, and The Roku Channel itself ranked among the platform’s top five channels in the third and fourth quarters.
In turn, monetized ad impressions on Roku’s platform nearly doubled in 2021, translating into strong financial results. Revenue soared 55% to $2.8 billion last year, and the company generated $188 million in free cash flow, nearly triple from $66 million in 2020. But shareholders have good reason to believe that Roku can maintain this momentum.
For many people, streaming media is already the go-to option for home entertainment, but advertising budgets continue to catch up. Example: Connected TV (CTV) ad spend totaled $13.4 billion in the US last year, but marketers spent $65.9 billion, nearly five times as much. in linear TV ads, according to eMarketer. As advertising budgets continue to follow viewers on CTV, Roku stands to benefit. From that perspective, this growth stock could certainly deliver 166% returns in the short term, but Roku is best viewed as a long-term investment.
2. Coinbase Global
Coinbase is the largest US cryptocurrency exchange. Its platform offers a range of services to retail traders and institutional investors, helping them securely buy, sell, spend, store and stake crypto assets. The company has achieved significant scale as it currently owns 11.5% of all crypto assets on its market-leading platform. This creates a large pool of cash that Coinbase can use to fund growth initiatives like its soon-to-be-launched Non-Fungible Token (NFT) marketplace.
More broadly, the Coinbase brand inspires trust, and for many investors it has become synonymous with cryptocurrency. This has led to strong financial results. In 2021, Coinbase saw its number of monthly transacting users quadruple to 11.4 million, and transaction volume increased more than eight times to $1.7 trillion. In turn, revenue soared 514% to $7.8 billion, and GAAP earnings increased more than tenfold to $14.50 per diluted share.
Looking ahead, Coinbase is well positioned to maintain this momentum. Cryptocurrencies are nothing if not volatile, and the company profits from this volatility. Most of its revenue is generated from transaction fees. In other words, the more people trade, the more money Coinbase makes. And the crypto market has crashed twice in the last 12 months, which means lots of cryptocurrencies have been bought and sold.
Additionally, Coinbase CEO Brian Armstrong believes that the future NFT market could be bigger than his current cryptocurrency business. From this perspective, the analyst’s price target of $394 seems quite plausible. That being said, even though Coinbase stock continues to underperform in the short term, it still seems like a solid choice for patient investors, especially if you believe in the future of the crypto economy.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.