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3 Growth Stocks Down More Than 80% That Are Screaming Buys in January

In Business
January 13, 2024

As a broad category, growth stocks have enjoyed some strong positive momentum during the past year — but investors still have chances to build positions in promising players that trade at incredible discounts. With signals that favorable macroeconomic conditions might boost the market in 2024, now could be a great time to seize on these opportunities.

Backing solid companies that trade at relatively low earnings multiples could lead to explosive returns. With that in mind, read on for a look at three attractively valued stocks trading down more than 80% from their respective peaks that could bounce back and deliver incredible returns for investors.

1. StoneCo: Down 82% from its high

StoneCo (NASDAQ: STNE) is a top provider of payments-processing services for small and medium-sized businesses (SMBs) in the Brazilian market. While the company’s payment-processing business has been serving up stellar growth during the past five years, the company hit a rough stretch after its lending business faltered and incurred massive losses.

StoneCo is building up the credit business again after it stopped making new loans, but the payments-processing unit is still the standout performance driver. And thankfully, it’s posting great results.

StoneCo’s revenue jumped 25% year over year to hit 3.14 billion Brazilian reals — roughly $641.6 million based on the current exchange rate. With sales climbing and efficient cost management, the company’s adjusted net income — meaning not in accordance with generally accepted accounting principles (non-GAAP) — skyrocketed 477% to hit $322 million reals.

STNE PE Ratio (Forward) Chart

STNE PE Ratio (Forward) Chart

Trading at less than 14 times this year’s expected earnings and 2 times expected sales, StoneCo looks cheaply valued given the business’s recent performance and outlook.

2. Zoom: Down 88% from its high

Zoom Video Communications (NASDAQ: ZM) stock was a pandemic-era darling, but it fell on hard times as the positive tailwinds ended. On the other hand, the company has continued to post solid performance and still has long-term growth opportunities. Trading at less than 14 times this year’s expected earnings, Zoom has the makings of a potentially explosive turnaround play.

ZM PE Ratio (Forward) Chart

ZM PE Ratio (Forward) Chart

The company posted revenue of roughly $1.14 billion in the third quarter, up about 3% year over year. Meanwhile, the company recorded an adjusted gross margin of 79.7% in the period. Even with the relatively modest sales growth, cost-cutting initiatives and other efficiency improvements helped power adjusted earnings per share 21% higher from the same period a year ago.

While the low-single-digit percentage revenue growth recorded in Q3 might not look particularly inspiring, there are good reasons to think that the company’s sales growth rate could accelerate again in the near future. Zoom’s remaining performance obligations, a metric that tracks deals that have been contracted for but have yet to be delivered and recorded as revenue, were up 10% year over year to roughly $3.57 billion at the end of Q3.

3. Fiverr: Down 92% from its high

Fiverr International (NYSE: FVRR) operates a leading marketplace for gig-labor jobs. Like Zoom, Fiverr stock soared to incredible highs as demand for its services soared during the peak of the pandemic — only to see big sell-offs as these catalysts waned.

While the company has seen performance fluctuate in tandem with pandemic-related trends, it’s back to posting encouraging growth.

Fiverr’s sales rose roughly 12% year over year to hit $92.5 million in the third quarter. The company continued to demonstrate strong pricing power, while the average commission it took on transactions done through its platform rose to 31.3% — up from 30% in the prior-year period.

Fiverr’s gross margin rose to 83.7%, expanding from 81.1% in the prior-year period. Thanks to solid sales growth and margin improvements, the company saw adjusted profit rocket higher in Q3. Adjusted earnings per diluted share rose 167% year over year to hit $0.55 in the period.

The gig economy specialist is trading at just 11.5 times this year’s expected sales and less than 2.5 times expected sales. Down roughly 92% from its high, Fiverr could be poised for a massive comeback.

Should you invest $1,000 in StoneCo right now?

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Keith Noonan has positions in Fiverr International and StoneCo. The Motley Fool has positions in and recommends Fiverr International, StoneCo, and Zoom Video Communications. The Motley Fool has a disclosure policy.

3 Growth Stocks Down More Than 80% That Are Screaming Buys in January was originally published by The Motley Fool

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