In financial markets, cash flow, growth prospects and valuation matter. However, investor sentiment plays a key role in driving growth stocks up or down. When the economic outlook is positive and the financial system has ample liquidity, growth stocks tend to post a valuation premium.
On the other hand, when the economic outlook weakens and restrictive monetary policies are continued, growth stocks trade at valuation gaps. Simply put, the corrections are overkill.
It is not rocket science to understand the fact that it is time to invest in stocks when the feelings are pessimistic. However, the psychology of fear and greed is such that investors buy in euphoria and sell in panic. Whether it’s trading or investing, it’s a mind game.
With several growth stocks falling over the past few months, there appears to be another golden buying opportunity. Of course, not all growth stocks will recover. There are stories that culminate in bear markets. However, others will recover and offer multiple returns over the long term.
These seven growth stocks look attractive for long-term exposure.
|CHPT||ChargePoint Holdings, Inc.||$12.69|
|PIECE OF MONEY||Coinbase Global, Inc.||$49.04|
Growth stocks: Xpeng (XPEV)
Over the past month, XPeng (NYSE:XPEV) the stock jumped 26%. The rally from deeply oversold levels is underpinned by political support for electric vehicles in China.
However, even after the big rally, XPEV stock is down 30% year-over-year. With sustained positive developments, even from a company-specific perspective, the stock is still undervalued.
For the first quarter, XPeng reported a 159% growth in vehicle deliveries to 34,561. The company’s gross margin also increased by 100 basis points on an annual basis to 12.2%.
It should be noted that XPeng launched the P5 sedan in October 2021. Additionally, the G9 is expected to launch in the last quarter of 2022. The new models will continue to drive shipment growth once temporary headwinds from the industry will be navigated.
XPeng also has ambitious international expansion plans. With a growing presence in Europe, the company’s growth will be sustained in the coming years. With delivery growth remaining strong, operating leverage will also result in higher margin on vehicles.
pinterest (NYSE:PINS) the stock is down nearly 4% in the past month and 50% so far in 2022. However, at a forward price-to-earnings ratio of 22.8, the stock still looks undervalued.
I have two major reasons for loving Pinterest.
First, the company reported over 50% active users outside of the US and Europe. However, the average revenue per user for the rest of the world was only eight hundred. In comparison, the ARPU of the United States and Canada is $4.98. Even from Europe, the ARPU is 72 cents. There is huge scope for ARPU growth in emerging markets. This is a catalyst for increased revenue and cash flow.
Additionally, Pinterest’s goal is to make the shopping platform user-friendly. I see the company as a proxy global e-commerce platform. Recently, Pinterest completed the acquisition of The Yes, an AI-powered shopping platform. With further inroads as a proxy e-commerce platform, the company is well positioned to benefit.
ChargePoint Holdings (CHPT)
The electric vehicle industry is experiencing multi-year tailwinds. Europe is focusing on reducing dependence on Russia for its energy needs. Adopting electric vehicles is one way to achieve this goal. In the United States, the Biden administration plans to spend $5 billion on electric vehicle charging stations.
With these contrary winds, Charging point (NYSE:CHPT) is among the most important growth stocks to consider. The company already has a leading position in North America and has expanded to 16 countries in Europe.
Currently, the majority of revenues come from North America. However, as European expansion gains momentum, revenue growth is expected 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, cash burn should hold up with aggressive investing. However, this is unlikely to be a major concern for a growing business.
Growth stocks: Coupang (CPNG)
Markets punished coupang (NYSE:CPNG) on growth and profitability concerns. However, after a 49% decline in 2022, CPNG stock looks undervalued.
At constant exchange rates, Coupang reported revenue growth of 32% for the first quarter compared to a year ago. The company’s adjusted EBITDA losses also narrowed in the quarter.
It seems likely that a growth rate of around 30% will be sustainable in the years to come. International expansion is one of the reasons for this view. At the same time, Korea has 37 million online shoppers. Currently, Coupang has 18 million active customers. There are many opportunities for growth in Korea.
In terms of profitability, Coupang expects to generate a long-term adjusted EBITDA of between 7% and 10%. The company also guided a positive adjusted EBITDA from the commodity trading segment by the end of the year. If this target is achieved, the stock of CPNG should increase.
Sea Limited (SE)
Another e-commerce stock that is trading at attractive levels is Sea Limited (NYSE:SE). A correction of 68% so far this year is explained by the consumption of cash and the relative slowdown in growth.
However, the long-term outlook remains strong, with Sea Limited focusing on high growth markets. The company already has a strong presence in Southeast Asia. With breakthroughs in Latin America, the company’s growth momentum will remain strong.
I’m also bullish on the financial services segment of the business. For the first quarter, active users grew 78% year-over-year to 49 million. The total volume of payments for the mobile wallet has also seen steady 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 continues, the leverage of operation will drive profitability.
In the short term, Sea Limited has $8.8 billion in cash and short-term investments. This will help the company to make aggressive investments and sustain itself during the cash burn period.
Coinbase (NASDAQ:PIECE OF MONEY) the stock got off to a strong start in 2021 when cryptocurrency sentiment was positive. Euphoria has turned into extreme distress and COIN stock has plunged 80% so far in 2022.
For investors willing to consider a high-risk bet, the stock is attractive around $50. While the crypto crash is a big negative for growth and margins, Coinbase still looks attractive over the long term.
There has been a steady growth in Coinbase Wallet adoption. Additionally, the company has also launched the beta version of Coinbase NFT.
Another point to note is that the trading volume linked to Bitcoin (BTC-USD) and Ethereum (ETH-USD) accounted for 45% of total trading volume. As more assets are listed to trade on the platform, volume growth should be robust once market sentiments reverse.
Coinbase ended the first quarter of 2022 with $6.1 billion in cash and cash equivalents. There is great financial flexibility to pursue product development.
Growth Stocks: Roblox (RBLX)
I believe that Roblox (NYSE:RBLX) is also a victim of negative market sentiment. Sure, growth has slowed, but the selloff might be overdone given 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 industry tailwinds.
For the first quarter, Roblox reported revenue growth of 39% to $537.1 million. The company’s daily active users also grew 28% year-over-year to 54.1 million. I also like that Roblox reported free cash flow of $104.6 million for the quarter.
Even with revenue growth in the 30% to 40% range, the company appears to be positioned for higher cash flow. For the first quarter of 2022, the company recorded a 94% growth in active users from Asia-Pacific. The growth of users from the rest of the world (excluding the United States and Europe) was 34%. Emerging markets are likely to drive long-term growth.
As of the date of publication, Faisal Humayun does not hold (either directly or indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.