AmazonThe planned 20-to-1 stock split and recently announced quarter-point interest rate hike by the Federal Reserve have been among the biggest stories in the investing world of late. While the tech giant’s stock split is generating excitement among investors and the Fed’s rate hike will have far-reaching effects and impact demand for tech stocks, the fact that some growth stocks are currently trading at very attractive discounts should not be overlooked.
With that in mind, a panel of Motley Fool contributors profiled three of their favorite and beaten growth stocks. Read on to see why they identified Metaplatforms (FB 4.16% ), Unit software ( U 4.74% )and netflix ( NFLX 2.48% ) as companies that could offer incredible returns to growth-oriented investors.
Easy to hate, hard to ignore
Jason Hall (Metaplatforms): I’ll be the first to admit that I don’t own shares of Meta Platforms. I will also state publicly that I am unlikely to take my own advice on this and buy shares in the company, as it is a business model that I do not particularly support. I think social media is complex and I’m not sure it does more good than harm to society. But my personal reluctance shouldn’t be a reason for those who don’t share my qualms about owning the company.
‘Cause man it’s so profitable.
Meta made $39.3 billion in net income in 2021, and almost all of that was free cash flow. It is still one of the largest and most important advertising platforms in the world. And despite the opinions of people like me who hold the company with a hint of disdain — hypocrisy alert — I continue to use Facebook and its other platforms, as do billions of other people who don’t. simultaneously complain.
Ultimately, Meta Platforms has never been cheaper, trading for less than 16 times earnings and free cash flow, and nearly 10 times operating cash flow.
Should investors just hold their noses and buy stocks? It’s up to them to decide. But I think Meta will remain a cash cow, become more profitable and outperform the S&P500 over the next five years. I think shareholders, users and ad buyers should also continue to hold the leadership’s feet on fire to be better for humanity.
This downed software leader could be explosive
Keith Noonan (Unity software): Unity Software is a company that provides content creation tools, and its services are currently used in the creation of more than two-thirds of augmented reality (AR) and virtual reality (VR) content. In addition to leading the content creation space for augmented reality and virtual reality and benefiting from ongoing metaverse trends, Unity is also already the market leader in development engine services for the mobile games market.
More than 71% of the top 1,000 mobile games on the market rely on Unity software, and developers of all sizes turn to the company’s tools to create their content. For example, even the video game industry leader ActivisionBlizzardis a huge success Call of Duty: Mobile is built on the software engine of Unity, and the software specialist has promising avenues for growth as it attracts more customers and sees spending increase from those who already use its services.
The company closed 2021 with a net dollar retention rate of 140%, meaning existing customers on its platform spent an average of 40% over the prior year period. The company’s net expansion rate was actually higher than the 138% rate it posted at the end of 2020, and sales growth in its development engine services segment actually accelerated despite a comparative base difficult. Unity ended last year with 1,052 customers contributing $100,000 or more in revenue over the past 12 months, up 33% year-over-year, and those catalysts helped it grow its sales of 44% per year to reach 1.1 billion dollars.
I think the interactive content market is still poised for huge long-term growth, and I recently bought some Unity stock for my portfolio. With shares down around 35% year-to-date and 56% from their peak, it’s a cutting-edge software company that could become a huge winner for long-term investors. term.
Netflix Spends Nearly $20 Billion on Content While Making Strong Profits
Parkev Tatevosyan (Netflix): The pioneer of streaming content has fallen out of favor with the market. The stock is down 47% from its peak in just a few months. This created an opportunity for long-term investors to buy this downcast growth stock at a lower valuation. And make no mistake, Netflix is still a growth stock.
Much has been made of Netflix’s slowing subscriber growth. Investors have always worried that Netflix’s surge in acquisitions and engagement at the start of the pandemic might not last. This is to be expected. No one thinks we’ll be releasing as much content as we did during lockdowns. Netflix has retained the subscriber growth achieved over the past two years and is adding to its totals.
As of December 31, 2021, Netflix had 222 million subscribers, up 9% from the same period a year earlier. The total was enough to generate $7.7 billion in revenue. It’s money the streaming leader can use to spend on content to bolster their leadership position. Indeed, in the 12 months ended December 31, Netflix spent $17 billion on content. All of this will move the wheel for Netflix forward. More content brings more subscribers, which generates more revenue that can be spent on more content, and so on.
Moreover, Netflix has reached a large enough scale to generate solid profits. Net profit reached $5.1 billion in the year ended Dec. 31, compared with $2.7 billion a year earlier. Luckily for investors, Netflix can be bought at its lowest price-to-earnings (P/E) ratio in five years. At 32.86, the P/E is down considerably from the over 120 it was trading for around July 2019.
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.