7 Growth Stocks Trading At A Huge Discount Right Now
These growth stocks had a deep correction, but the long-term business outlook is positive.
- These seven growth stocks are trading at a discount and are worth considering for possible multi-fold returns over the next few years.
- Teladoc Health (TDOC): Teladoc has a large addressable market in U.S. and internationally, and its margin improvement is likely to sustain.
- TuSimple Holdings (TSP): The company also has a big addressable market with innovation being the differentiating factor.
- Nio (NIO): New model launches in 2022 to drive growth coupled with aggressive international expansion plans.
- DraftKings (DKNG): While DraftKings’ cash burn remains a concern, healthy growth is likely to sustain with a growing addressable market.
- Rada Electronic (RADA): A top pick from the small-cap defense sector segment, its merger with Leonardo DRS is likely to create long-term value.
- Riot Blockchain (RIOT): Riot boasts robust growth in mining capacity through January 2023, as well as a healthy balance sheet with cash and digital assets.
- AppHarvest (APPH): AppHarves is well positioned to benefit from challenges of water and food scarcity, with new farms and strong growth likely to sustain.
With the broad market correction and revision of growth estimates, there is a solid list of growth stocks trading at a discount. However, considering the factors of inflation and a potential recession, investors have been inclined to buy blue-chip stocks.
Of course, I agree that it’s time to remain overweight on large-cap stocks that have a low beta. At the same time, though, growth stocks trading at a huge discount can be considered. Once market sentiments reverse, growth stocks will outperform large-cap stocks.
I must add that with economic uncertainties, I would buy growth stocks in a systematic investment plan (SIP) mode. In simple words, if I had $100 to allocate towards growth stocks, I would put $20 each month in my basket of selected stocks.
With all of this in mind, these seven growth stocks have witnessed a deep correction. In turn, they all look undervalued from a medium to long-term growth visibility perspective — making them top growth stocks trading at a discount.
Growth Stocks Trading at a Huge Discount: Teladoc Health (TDOC)
In April 2022, Cathie Wood suggested that investors are missing the point that Teladoc (NYSE:TDOC) is in the “same league” as Amazon (NASDAQ:AMZN). After a correction of more than 70% in the last 12 months, TDOC stock is among the growth stocks trading at a discount.
More specifically, it’s worth noting that the stock recently bottomed out at $27.38. Now, though, TDOC stock is already higher by 55% from those levels. So it seems likely that the stock will trend higher after consolidation.
For the first quarter of 2022, the company reported revenue growth of 25% to $565.4 million. Revenue growth in the U.S. was 24% year-over-year (or YOY), while international revenue growth was higher at 27% over the same period. And with a big addressable market, growth is likely to remain healthy.
I also like the fact the EBITDA losses have narrowed significantly and adjusted EBITDA remains positive. With the cash burn being arrested and with sustained growth in average U.S. revenue per member, Teladoc is positioned for margin improvement.
TuSimple Holdings (TSP)
TuSimple Holdings (NASDAQ:TSP) stock has plunged by almost 50% over the past six months. However, over the last month, the stock has been able to bounce back a bit by 40%. In turn, this might be an indication of the point that TSP stock has bottomed out.
Even with some high-profile management exits, Morgan Stanley remains positive on TuSimple. Analyst Ravi Shanker is bullish considering the company’s “technology, business model and total addressable market….”
To put things into perspective, the global truck freight market is worth $4 trillion. With that in mind, TuSimple is working on creating a fully autonomous (SAE Level 4) driving solution for long-haul trucks through its Autonomous Freight Network. In Q1 2022, the company indicated that “strong progress” has been made on the technology development front.
Further, TuSimple already has 7,475 reservations from blue-chip partners across the freight ecosystem. So, in the next few years, the revenue upside potential is significant.
It’s also worth noting that TuSimple does not have significant capital investments. The technology-based business model can be a cash flow machine once the technology is on the road. Thus, at its current price, TSP stock is one of the top growth stocks trading at a discount.
Growth Stocks Trading at a Huge Discount: Nio (NIO)
It’s very likely that China’s favorable policies for electric vehicles (EVs) will be extended beyond 2022. In turn, this could mean great things for Nio (NYSE:NIO), which is attractive among Chinese electric vehicle growth stocks.
Overall, shares of the EV firm has suffered a drop of 38% YTD. Nonetheless, besides positive industry tailwinds, there are company-specific catalysts.
Nio has an attractive line-up of new electric vehicles, including the ES7 and ET5 which are scheduled for mass delivery in the second half of 2022. So, while delivery growth was disappointing in Q2 2022, it’s likely that growth will accelerate in the coming quarters. Additionally, Nio also has a robust cash buffer to pursue aggressive international expansion. And with a focus on Europe, the company’s growth outlook seems bright.
I also believe that vehicle margin will continue to improve with growth in deliveries. In the near-term, raw material inflation will impact key margins. However, the long-term outlook is positive on operating leverage — boding well for NIO stock.
DraftKings (DKNG)
There seems to be no end to the correction for DraftKings (NASDAQ:DKNG). For risk-taking investors, though, the growth stock seems to be trading at a massive discount.
Recently, JMP Securities analyst Jordan Bender initiated coverage on DKNG stock with an “Outperform” rating. More specifically, the analyst set a price target of $25 for the stock, which would imply an upside potential of around 80% from current levels.
Moreover, it’s worth noting that online sports betting (or OSB) and iGaming are still at an early growth stage in the U.S. With more states legalizing OSB and iGaming, there is potential for sustained top-line growth. On that note, DraftKings believes that the total addressable market in the U.S. is in the range of $67 billion to $80 billion.
Of course, a major concern for DKNG stock investors is the cash burn. Even with higher revenue per user, EBITDA losses have widened. However, once marketing and selling expenses decline, cash flows are likely to improve. And the company has guided for long-term adjusted EBITDA of $2.1 billion.
Overall, there seems to be limited downside risk for DKNG stock at current levels. On the other hand, though, the upside potential is significant if key margins improve.
Growth Stocks Trading at a Huge Discount: Rada Electronic (RADA)
Defense stocks are likely to be performers in the coming years as geopolitical tensions remain high. Among blue-chip stocks, Lockheed Martin (NYSE:LMT) stock is my top pick.
However, there also seems to be deep value among growth stocks in the defense sector. And Rada Electronic (NASDAQ:RADA) stock is among the quality defense growth stocks trading at a discount.
For the last six months, RADA stock has been basically sideways, up just 4% over that time. With an impending merger and potential value creation, the growth stock is attractive at a forward price-earnings ratio (P/E) of 23.
Just last month, Rada and Leonardo DRS agreed on an all-stock merger. The business combination is expected to create a leading provider of defense products and technologies.
For 2021, the combined entity is likely to clock a turnover of $2.7 billion. Furthermore, the guidance for adjusted EBITDA is $278 million. With 74% of the revenue coming from the U.S. Army and Navy, the outlook seems bright.
With merger synergies and operating leverage, margin expansion of 150-200 basis points is expected through 2023. Overall, with a growing addressable market, the merger is likely to create value for investors.
Riot Blockchain (RIOT)
Source: Shutterstock
For a large part of 2021, cryptocurrency stocks were among the darlings of the markets. However, the crash in Bitcoin (BTC-USD), has reversed sentiments. Growth plans for major Bitcoin mining companies however remain unaltered.
I believe that Riot Blockchain (NASDAQ:RIOT) is trading at a massive discount. While it’s a high-risk bet, returns can be multi-folds if there is a strong reversal in Bitcoin in the next 12-24 months.
From a growth perspective, Riot reported hashing capacity of 4.6EH/s in June 2022. With the aggressive deployment of miners, the company expects capacity to increase to 12.6EH/s by January 2023. This will have a meaningful impact on the top line once Bitcoin trends higher.
In the near term, margin compression is likely. However, the company is well positioned from a financial perspective to navigate challenging quarters. As of Q1 2022, Riot reported $113.6 million in cash. Additionally, the company held 6,536 Bitcoin at the end of the period.
Growth Stocks Trading at a Huge Discount: AppHarvest (APPH)
With factors such as water scarcity and food shortage, vertical farming stocks have been in the limelight. However, cash burn has translated into big corrections in all vertical farming stocks.
In turn, firms like AppHarvest (NASDAQ:APPH) are getting crushed. And thus, APPH stock is among the growth stocks trading at a discount from the sector. Overall, APPH stock is up more than 10% YTD. So even with the broad market correction, this movement is an indication that the stock has bottomed out.
For Q1 2022, the company reported revenue growth of 125% YOY to $5.2 million. Furthermore, AppHarvest has also guided for full-year sales between $24 million to $32 million.
The key point to note is that AppHarvest will be opening three more high-tech farms by the end of 2022. This will ensure that robust growth sustains well into 2023. AppHarvest is also in discussions for financing for a 15-acre salad greens facility in Kentucky. In turn, secured financing for this facility will be a positive catalyst for the stock.
Overall, APPH stock is attractive and has discounted the cash burn concerns. With operating leverage, it’s likely that key margins will improve in 2023 and 2024.
This post originally appeared in Investor Place.
Category: Stocks
