In financial markets, cash flows, growth outlook and valuation does matter. However, investor sentiment plays a key role in driving growth stocks higher or lower. When the economic outlook is positive and the financial system has ample liquidity, growth stocks tend to command a valuation premium.
On the other hand, when the economic outlook weakens and contractionary monetary policies are pursued, growth stocks trade at valuation gaps. In simple words, corrections are overdone.
It’s no rocket science to understand the fact that the time to invest in stocks is when sentiments are pessimistic. However, the fear and greed psychology are such that investors buy on euphoria and sell on panic. Be it trading or investing, it’s a mind game.
With several growth stocks plunging in the last few months, there seems to be another golden buying opportunity. Of course, not all growth stocks will recover. There are stories that culminate with the bear markets. However, others will recover and deliver multi-fold returns in the long-term.
These seven growth stocks look attractive for long-term exposure.
|CHPT||ChargePoint Holdings, Inc.||$12.69|
|COIN||Coinbase Global, Inc.||$49.04|
Growth Stocks: Xpeng (XPEV)
In the last month, XPeng (NYSE:XPEV) stock has surged by 26%. The rally from deeply oversold levels is on the back of policy support for electric vehicles in China.
However, even after the big upside, XPEV stock is down by 30% on a 12-month basis. With sustained positive developments even from a company specific perspective, the stock is still undervalued.
For the first quarter, XPeng reported 159% growth in vehicle deliveries to 34,561. The company’s gross margin also increased by 100 basis points on a year-on-year basis to 12.2%.
It’s worth noting that XPeng launched P5 sedan in October 2021. Further, the launch of G9 is due in the last quarter of 2022. New models will continue to boost deliveries growth once temporary industry headwinds are navigated.
XPeng also has ambitious international expansion plans. With increasing presence in Europe, the company’s growth will be supported in the next few years. As deliveries growth remains strong, operating leverage will also translate into vehicle margin expansion.
Pinterest (NYSE:PINS) stock is down nearly 4% in the last month and by 50% so far in 2022. However, at a forward price-earnings ratio of 22.8, the stock still seems undervalued.
I have two major reasons to like Pinterest.
First, the company reported more than 50% of active users from outside the U.S. and Europe. However, the average revenue per user from the rest of the world was just eight cents. In comparison, the ARPU from U.S. and Canada is $4.98. Even from Europe, the ARPU is 72 cents. There is immense scope for ARPU upside from emerging markets. This is a catalyst for revenue and cash flow upside.
Furthermore, the focus of Pinterest is to make the platform shopping friendly. I see the company as a proxy global e-commerce platform. Recently, Pinterest completed the acquisition of the The Yes, an AI-powered shopping platform. With further inroads as a proxy e-commerce platform, the company is positioned to benefit.
ChargePoint Holdings (CHPT)
The electric vehicle industry has multi-year tailwinds. Europe is focused on reducing dependence on Russia for energy needs. Adoption of electric vehicles is one way to achieve this objective. In the United States, the Biden administration plans to spend $5 billion towards EV charging stations.
With these tailwinds, ChargePoint (NYSE:CHPT) is among the top growth stocks to consider. The company already has leadership position in North America and has expanded to 16 countries in Europe.
Currently, a majority of revenue comes from North America. However, as European expansion gains traction, top-line growth is likely to accelerate. ChargePoint also derives revenue from hardware and software solutions.
As the charging network expands, software revenue (recurring revenue) will increase. This will have a positive impact on the company’s EBITDA margin. For now, the cash burn is likely to sustain with aggressive investments. However, that’s unlikely to be a major concern for a growth stage company.
Growth Stocks: Coupang (CPNG)
The markets have punished Coupang (NYSE:CPNG) stock on growth and profitability concerns. However, after a decline of 49% in 2022, CPNG stock seems undervalued.
On a constant currency basis, Coupang reported revenue growth of 32% for the first quarter from a year ago. The company’s adjusted EBITDA losses also narrowed during the quarter.
It seems likely that a growth rate of around 30% is sustainable in the coming years. International expansion is one reason for this view. At the same time, Korea has 37 million online shoppers. Currently, Coupang has 18 million active customers. There is ample scope for growth within Korea.
In terms of profitability, Coupang expects to deliver long-term adjusted EBITDA in the range of 7% to 10%. The company has also guided for positive adjusted EBITDA from the product commerce segment by the end of the year. If this target is achieved, CPNG stock is likely to trend higher.
Sea Limited (SE)
Another e-commerce stock that’s trading at attractive levels is Sea Limited (NYSE:SE). A correction of 68% so far this year has been on the back of cash burn and relative deceleration in growth.
However, the long-term outlook remains robust with Sea Limited focused on high-growth markets. The company already has strong presence in Southeast Asia. With inroads into Latin America, the company’s growth momentum will remain strong.
I am also bullish on the company’s financial services segment. For the first quarter, active users increased by 78% on a year-on-year basis to 49 million. The total payment volume for mobile wallet has also witnessed sustained growth.
Cash burn is a concern. However, Sea Limited expects Shopee to achieve positive adjusted EBITDA in Southeast Asia and Taiwan by the end of 2023. As robust top-line growth sustains, operating leverage will drive profitability.
In the near term, Sea Limited has $8.8 billion in cash and short-term investments. This will help the company make aggressive investments and sustain through the period of cash burn.
Coinbase (NASDAQ:COIN) stock was off to a flying start in 2021 when sentiments related to cryptocurrencies was positive. The euphoria has transformed into extreme distress and COIN stock has plunged by 80% so far in 2022.
For investors willing to consider a high-risk bet, the stock is attractive around $50 levels. While the crypto crash is a big negative for growth and margins, Coinbase still seems attractive for the long term.
There has been a steady growth in Coinbase Wallet adoption. Further, the company has also launched the beta version of Coinbase NFT.
Another point to note is that the trading volume related to Bitcoin (BTC-USD) and Ethereum (ETH-USD) was 45% of total trading volume. As more assets are listed for trading on the platform, volumes growth is likely to be robust once the market sentiments reverse.
Coinbase ended Q1 2022 with $6.1 billion in cash and equivalents. There is ample financial flexibility to pursue product development.
Growth Stocks: Roblox (RBLX)
I believe that Roblox (NYSE:RBLX) is also a victim of negative market sentiments. Of course, growth has decelerated, but the selling might be overdone considering the long-term growth outlook.
The first point to note is that the metaverse market is expected to grow at a compound annual growth rate of 50.74% between 2022 and 2030. Roblox will be a key beneficiary of the positive industry tailwinds.
For the first quarter, Roblox reported revenue growth of 39% to $537.1 million. The company’s daily active users also increased by 28% on a year-on-year basis to 54.1 million. I also like the fact that Roblox reported free cash flow of $104.6 million for the quarter.
Even with revenue growth in the range of 30% to 40%, the company seems to be positioned for cash flow upside. For Q1 2022, the company reported 94% growth in active users from Asia Pacific. User growth from rest of the world (excluding U.S. and Europe) was 34%. Emerging markets are likely to drive long-term growth.
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.