3 growth stocks that are screaming buys right now
The market has recently lost interest in growth stocks. Between high inflation, the omicron variant of the coronavirus, the Federal Reserve’s plans to raise interest rates and cut other economic stimulus initiatives, and disappointing economic data, investors had a litany of factors. risk to take into account. Lately, it seems like a new one pops up almost every other day.
Here’s the good news: With the market getting nervous about growth stocks as a general category, there are promising companies caught in the pullback that are now trading at huge discounts. Read on to see why a panel of Motley Fool contributors identified Despegar.com (NYSE: DESP), StoneCo (NASDAQ:STNE), and Chegg (NYSE:CHGG) like stocks with massive long-term upside potential.
Don’t Miss This Potentially Explosive Stock
Keith Noonan (Despegar.com): Last year was difficult for many companies in Latin America. Relatively high levels of inflation and instances of political and economic instability have made investors more cautious about stocks with high exposure to the region. In addition to these factors, travel booking specialist Despegar has faced persistent challenges related to the coronavirus pandemic, and its valuation has taken a dramatic hit.
Despegar stock is down about 26% in the past year and about 46% from its 52-week high. The company now has a market capitalization of approximately $671.5 million and is valued at 1.3 times expected sales for this year. The upside is that the stock looks pretty cheap at current prices and there are signs of a strong rally underway.
While the company’s third quarter bookings were still down 44% from the comparable pre-pandemic quarter in 2019, bookings were up 298% year over year and 34% on a sequential. Recent headwinds have been at the forefront of market attention, but key Latin American territories are likely to benefit from a growing middle class over the next decade and beyond, and the travel and in the region’s hospitality industry are rebounding and poised for strong long-term growth. term.
Despegar’s strong market position and low valuation also make it a potential acquisition target. Expedia already owns a 14% stake in the company, and it wouldn’t be surprising to see the company or another player in the online travel agency space rush to buy the company out at a substantial premium. Despegar shares offer investors multiple paths to huge returns, and they stand out as a great buy after recent selloffs.
Wrong expectations create a rare opportunity
Jason Hall (StoneCo): It’s been a brutal year for many fintech stocks, including Brazilian payments and financial services company StoneCo. As of this writing, stocks are down more than 80% from their all-time high, reached in early 2021, due to a combination of high inflation stalling the Brazilian economy and this put pressure on StoneCo’s credit activities.
But more generally, it appears that the sell-off in StoneCo shares has been exacerbated by the larger decline in tech/growth stocks over the past 11 months. StoneCo’s focus on Brazil, with its struggling economy, has lost much more value than other fintech companies such as To block and Sea Limited, which offer similar (sometimes competing) services, but do not have a concentrated exposure to a struggling economy like Brazil’s.
Yes, Brazil is a bit of an economic mess right now, but tying StoneCo’s path exclusively to Brazil to get back on track economically misses the biggest opportunity. Brazil has higher internet access rates than many other Latin American countries, and the number of people with bank accounts is growing.
But there is still a huge opportunity to help merchants in their digital transformation. This includes tools for omnichannel management, payments, accounting, point of sale systems and many more. And despite what stock performance might lead you to think, StoneCo continues to grow at a rapid pace. Total product volume continues to grow, revenue in its home currency increased 57%, and the number of active payments customers more than doubled.
As a result, StoneCo stock is cheaper than it has ever been on a sales price basis, trading 7.2x. That’s a bargain price for this misunderstood company.
An education technology company with a strong moat
Parkev Tatevosian (Chegg): Education technology company Chegg is an excellent growth stock that is a crying buy right now. Chegg helps students take classes with less stress and more confidence.
Its website hosts over 70 million exclusive content that students can use to prepare for exams or complete an assignment. Step-by-step explanations of difficult concepts were created at the request of students.
Chegg subscribers have the opportunity to ask 20 questions per month that are answered by subject matter experts. The question and explanation become available to all Chegg subscribers. It took Chegg years to create this database, making it time-consuming and expensive for any competitor planning to encroach on its space.
Indeed, Chegg has spent most of the past decade generating operating losses while building the treasury of content assets. However, the company turned a corner in 2019 and made an operating profit of $18 million, which grew to $57 million in 2020.
With 4.4 million subscribers, Chegg is also increasing its free cash flow. For the nine months ended September 30, 2021, Chegg’s free cash flow was $138 million, compared to $68 million in the same period last year.
Moreover, investors can buy this growth stock at a great price. Chegg is trading at a price-to-free cash flow ratio of 25, near its all-time low. Its price-to-sales ratio of 5.4 is the lowest since 2018. During this time, Chegg has grown its content database, deepening its competitive edge and achieving sufficient scale to generate healthy operating profits and streams. available cash. For all these reasons, Chegg stock is a strong buy right now.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting 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.