The recent market dip has created some great buying opportunities. Solid businesses with great brands are trading at deeply discounted valuations. As Warren Buffett has proven throughout his career, buying great companies on sale can truly make you rich.
To give you some ideas, three Motley Fool contributors recently explained why they see value in Under Armour (UA 1.08%) (UAA 1.64%), Roku (ROKU -10.29%), and Roblox (RBLX 1.35%). These stocks are each down more than 70% from their all-time highs but are poised to rebound.
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Under Armour down 71%
John Ballard (Under Armour): The athletic apparel industry has been a consistent growth engine in the broader apparel industry for many years. But while leading brands like Nike and Lululemon Athletica have delivered stellar outperformance for investors, Under Armour has suffered from weak sales performance that led to poor returns for shareholders. But new leadership has turned things around in a hurry.
Under Armour has doubled down on delivering innovative products and executing on the business side of things, and the results last year speak for themselves. Revenue, gross margin, and earnings per share hit records in 2021, and there is more to come. It's clear Under Armour has found the right CEO in Patrik Frisk, who took over at the beginning of 2020.
The athletic apparel market was valued at close to $280 billion in 2016, according to Morgan Stanley. There are tremendous long-term opportunities for a relatively small brand like Under Armour to grow for a long time with only $5.7 billion in trailing-12-month revenue.
Investors should forget about where this stock has been and look at where the company is headed. At a price-to-earnings ratio of 20, Under Armour is a much better deal than Nike or Lululemon and could easily beat the broader market's return over the next decade.
UAA PE Ratio data by YCharts
Roku down 83%
Jennifer Saibil (Roku): If you bought a subscription to a streaming company or upped your viewing hours during the pandemic, you're not alone. And if you dropped a subscription or cut your views since lockdowns were lifted, you're also not alone.
These shifting trends have affected many companies, such as streaming company Roku, which has had to deal with unexpected and unusual choppiness as it tries to build its business. And many of these excellent businesses have seen their stocks tank as investors punish them for decelerating growth after posting gargantuan growth two years ago.
Roku was one of the best stocks to own when the pandemic started, but its slowdown is really not as bad as one might think from a stock price that's lost 75% of its value over one year. In the 2022 first quarter, sales increased 28% year over year. It's still posting more growth on top of last year, when it posted a 79% increase.
The numbers tell a story of a developing business. Both active accounts and streaming hours increased 14% year over year in the first quarter, and possibly even more importantly, average revenue per user increased 34%. It's getting back to losses after several quarters of profits, which is disappointing, but that's what the company had been projecting before the pandemic. So this is back to its regularly scheduled trajectory, with some new knowledge and experience.
The stock price decline may have been warranted, considering that the valuation was inflated, and it's not justified at these growth levels. At the current price, shares trade at a fairly modest price-to-sales ratio of 4.7, a huge drop from more than 25 at its higher price. Roku still has compelling expansion opportunities, and it's posting healthy growth. At this price, investors should strongly consider adding shares to their portfolios.
Roblox down 78%
Parkev Tatevosian (Roblox): Roblox is a turbocharged growth stock that is down substantially off its highs. The metaverse pioneer, which is popular with young children, thrived at the pandemic's onset when millions of kids were learning remotely and extracurricular activities were canceled. Parents who wanted their kids to stay in touch with friends were encouraged by their ability to do so in Roblox's virtual environments.
As a result, customer acquisition and engagement surged for Roblox. It went from 19.1 million daily active users in fourth-quarter 2019 to 55.1 million in February of this year. The platform is free to join and use.
Roblox makes money by selling an in-game currency called Robux. In that regard, it has sold enough to boost revenue from $325 million in 2018 to $1.9 billion in 2021. The rise in revenue helped increase free cash flow, which totaled $14.5 million in all of 2019. In the eight quarters that followed, Roblox generated $969 million in free cash flow. Such has been the magnitude of the benefit from the pandemic.
Of course, Roblox is facing headwinds in the near term as economies reopen, students go back to school, and after-school activities are restarted. That said, the stock has arguably already paid the price for those challenges, falling 78% from its high.
UAA Percent Off All-Time High data by YCharts
Investors can now buy Roblox stock at a price to free cash flow of 28, the lowest in its brief history as a public company. For those reasons, Roblox is a beaten-down supercharged growth stock investors can buy now.
