7 Cheap Growth Stocks That Are Too Good to Ignore
For traders, there is a time and a place to buy growth stocks. This is not one of them. While there may be a ton of cheap growth stocks to pick from, that doesn’t mean they are worthy of buying. That said, investors are in a different situation.
When it comes to trading, it’s all about maximizing risk versus reward. For growth stocks, that’s a difficult thing to do given that many of them have tumbled below key support levels and remain in terrible, bearish trends.
That said, the best of these stocks have avoided reaching new lows on the year, That’s something that’s not true of the overall market indices.
That’s why, for investors, it may be worth picking over the scraps of these cheap growth stocks now that many have fallen by 60%, 70% or more. If you’ve got some patience and the ability to wait several years, here are a few names that could generate significant profits.
|TTD||The Trade Desk||$56.48|
Cheap Growth Stocks: The Trade Desk (TTD)
The Trade Desk (NASDAQ:TTD) is one of the few growth stocks that I have started to nibble at amid this year’s decline. I am a bull at heart and generally prefer great companies and growth stocks. Once it was clear that the latter were getting steamrolled this year, I bailed on this group and have only recently started to pick at them again.
Long-term investors should not ignore The Trade Desk. It’s one of the few growth stocks that is actually profitable, and it has a robust business.
The biggest risk for TTD is ad spending. If — and some may say when — we find ourselves in a recession, ad spending will certainly take a hit. That does make me a little cautious about this name. As it stands though, this company continues to prove its doubters wrong.
Last quarter, it delivered in-line earnings and higher-than-expected revenue. But the kicker was guidance, which topped analysts’ average expectations and implies about 36% revenue growth. That’s robust in this environment.
Overall, average estimates call for about 33% revenue growth this year and 25% growth next year.
Cheap Growth Stocks: PayPal (PYPL)
The Trade Desk took a beating, but nothing like the 78% peak-to-trough decline PayPal (NASDAQ:PYPL) has absorbed. The stock has been roughed up and even traded below its Covid-19 low of $82.07 from March 2020.
However, like The Trade Desk, it’s hard to ignore the stock after such a massive decline. PayPal is well past its glory days of growth, but analysts still expect 10% to 15% revenue growth each year through FY25. That’s alongside steady earnings growth as well (although its earnings are forecast to fall about 14% this year).
Still, the shares now trade at just 21 times this year’s expectations and 17.5 times next year’s estimates. After several quarters of disappointing guidance, management raised its earnings guidance last quarter.
That has me thinking that its business has reached a low point.
Cheap Growth Stocks: DigitalOcean (DOCN)
With a market capitalization of $3.5 billion, DigitalOcean (NYSE:DOCN) isn’t that well-known outside of the software and growth investing circles. It’s certainly not being mentioned as a blue-chip stock to buy.
However, it may be one of the cheap growth stocks that investors should focus on — but there’s a pro and a con with this stock.
On the plus side, its growth is robust. Despite the turbulence of the overall market, analysts, on average, expect 33.5% sales growth this year, 31.5% growth next year and 30% growth in 2024 to almost $1 billion.
On the earnings front, analysts expect its profit to more than double to 75 cents a share this year, then grow another 60% in 2023. Given the economic environment, though, we can’t put too much weight on these estimates. They are good to know, but we can’t bank on them as truths.
Now for the con: While DigitalOcean stock trades at just 12 times analysts’ average FY25 earnings estimates, it trades at more than 45 times this year’s mean earnings estimate. Furthermore, it is still a high-growth stock, and that group remains vulnerable to further losses in a prolonged bear market, so keep that in mind as well.
Globe-E Online (GLBE)
Next up on our cheap growth stocks list is Globe-E Online (NASDAQ:GLBE). Weighing in with a market capitalization of roughly $3.8 billion, this name tends to fly under the radar. The fact that it’s based in Israel but trades on the Nasdaq likely adds to its lesser-known nature; it’s not exactly Amazon (NASDAQ:AMZN) .
For those who are unfamiliar with the company, “Global-e envisions a world where international ecommerce growth is both simple and profitable for retailers. By making selling globally as simple as selling locally, Global-e seeks to create a borderless ecommerce world, connecting shoppers and brands all over the world.”
Of course, that business model could be under pressure if we enter a prolonged global recession. That is certainly one risk posed by Globe-E. That said, a lot of risk was removed when the shares fell more than 81% from their high (and they still remain 70% below the high).
When the company reported its earnings in May, it reduced its full-year revenue guidance, but kept its adjusted EBITDA outlook intact. Management’s focus on free cash flow and profitability will go a long way to helping boost the stock’s performance in a bear market.
Analysts, on average, expect almost 70% revenue growth this year and 45% growth in each of the next two years after that. That said, estimates do call for a net loss this year and next year, though.
Last but not least, Confluent (NASDAQ:CFLT) makes our list of cheap growth stocks. The stock plunged from nearly $100 in November to less than $17 in May, a decline of more than 82%.
That’s enough to make almost any investor look up and pay attention.
And its business continues to deliver good financial results. Confluent has reported four top- and bottom-line earnings beats in a row and continues to generate strong growth. Analysts, on average, expect roughly 47% revenue growth this year, then 34% growth in 2023. That’s followed by an accelerating growth rate in 2024 and 2025, respectively.
Unfortunately, Confluent isn’t profitable, but its sticky platform — “Confluent makes it easy to connect your apps, data systems, and entire organization with real-time data flows and processing” — will enable its top line to continue to boom higher.
As a result, there’s a good chance that this stock will rise tremendously in the years ahead.
On the date of publication, Bret Kenwell held long positions in TTD and PYPL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.