3 Growth Stocks Worth Another Look

It's been a rough year for some of the most popular growth stocks on the market. Stocks that grew like crazy after the recession ended came crashing down to reality as performance failed to live up to the hype. Such is life with growth stocks, which can turn from bright spots to blemishes in a portfolio faster than you can say "Qwikster."

Five of the most popular companies at The Motley Fool for readers and analysts a year ago were SodaStream (Nasdaq: SODA  ) , Netflix (Nasdaq: NFLX  ) , Sirius XM (Nasdaq: SIRI  ) , Amazon.com (Nasdaq: AMZN  ) , and Green Mountain Coffee Roasters (Nasdaq: GMCR  ) . All except Sirius XM have been picks for one of our newsletters, and thousands of people have made outperform predictions on these stocks in our CAPS community.

But these popular stocks have had a rough go of it lately, with SodaStream, Netflix, and Green Mountain Coffee Roasters suffering big declines in the past year. Sirius XM has also experienced a loss over the past year and is seeing revenue growth slow dramatically, but so far it's managed to hold up relatively well. The only winner in the bunch, Amazon, looks like it's still priced for perfection these days.

Company

Market Cap

5-Year Growth Rate

Forward P/E

1-Year Stock Performance

SodaStream $697 million N/A 12.8 (32.9%)
Netflix $3.5 billion 23.8% 29.2 (75.6%)
Green Mountain Coffee Roasters $3.1 billion 59.5% 6.5 (71.3%)
Sirius XM $7.1 billion 33.5% 16.9 (4.5%)
Amazon.com $96.6 billion 32% 83.1 16%

Sources: Yahoo! Finance and Fool.com.

From the look of the table above, Sirius XM seems fairly priced to me as long as it doesn't miss earnings estimates. I wouldn't touch Amazon with a 10-foot-pole based on its earnings multiple. But SodaStream, Netflix, and Green Mountain Coffee Roasters have been hammered so far down that I would argue there are some compelling stock buys emerging here.

A little fizz in earnings
The market seemed to give up on SodaStream after management gave weak guidance after second-quarter earnings last year. The stock dropped 41% in a single day after the announcement, and it hasn't mattered that it has crushed earnings estimates each quarter and even raised guidance after the first quarter this year. The market reacted with little more than a yawn.

In the first quarter, revenue jumped 50.2% to $87.9 million and earnings per share rose 71.4% to $0.48, not the kind of numbers you would expect from a company trading at 18.7 times trailing earnings and 12.8 times forward earnings estimates.

The company's footprint in the Americas is barely scratching the surface of its potential, and despite the stock's drop, I don't see any quit in the company's earnings momentum. I think this stock has been left for dead and that investors would be wise to scoop it up before anyone figures out what a growth story this is.

The old darling returns
My fellow Fools have loved Netflix for years, and from my first days at the Fool, I shouted loudly that I thought the stock was too expensive to own. Over the last year, shorting Netflix would have been the right move, but it's time to reconsider that position after the stock's fall.

The problems started for Netflix after a series of gaffes by CEO Reed Hastings and the realization that growth would slow and expansion plans would bring the company's profitability down dramatically short-term. The situation hit bottom in the first quarter, when revenue fell slightly from the previous quarter and the company reported a loss of $0.08 per share, but profit is expected to return in the second quarter.

Most subscribers have forgotten the gaffes by now, and Netflix is now on an expansion march around the world. In the first quarter alone, the number of international streaming customers nearly doubled, and domestic paid subscriber counts began growing again as well. Analysts are expecting 2012 earnings per share to be just $0.09, with 2013 earnings per share jumping to $2.12. Considering the company has outpaced estimates in each of the last four quarters, a forward P/E ratio of 30 may be worth it in this disruptive business.

There are still plenty of challenges ahead, however. I don't think the current single-price streaming model will work long-term, and Netflix is going to have to adjust its subscriber options in the future to pay content providers appropriately for valuable content. But I would rather start from Netflix's subscriber base than from scratch in the streaming business, and that makes Netflix compelling at this price.

Burnt coffee beans
The plunge of Green Mountain Coffee Roasters has been dramatic and has prompted head-scratching at the same time. While the stock has been falling, revenue and profits have surged, and the company has run rings around analysts. Even after being bearish about the company's future, analysts continue to expect explosive growth and strong profits. For 2012, earnings estimates stand at $2.38 per share, and for 2013, they jump to $3.10.

That means the stock trades at 8.5 times 2012 estimates, and profits are only expected to improve. I understand the worry about expiring patents and competition from Starbucks, but Green Mountain has built up a strong following that Starbucks won't eliminate overnight, and it has a record of growing revenue, despite the predictions of its demise.

At this point, I'll throw out another possibility: If Starbucks really wants into this business, why not just buy Green Mountain Coffee Roasters and have K-Cups all to itself? It's profitable and the price is right.

I just don't see this business dying, and with a P/E ratio this low, Green Mountain Coffee Roasters looks like a great buy to me.

Back it up
I'm not just saying these three stocks are great buys, I'm backing it up with a CAPScall on each. I'm putting my 98.41 CAPS rating on the line with an outperform call to track my picks. To find the rest of my picks, see my CAPS portfolio here.

At one time these stocks were all multibaggers, and our analysts have found another they think fits the bill. Find out what it is in our free report found here.

Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

The Motley Fool owns shares of Netflix, Starbucks, Amazon.com, and SodaStream. Motley Fool newsletter services have recommended buying shares of Green Mountain, Amazon.com, Starbucks, Netflix, and SodaStream, as well as creating a lurking gator position in Green Mountain and writing covered calls on Starbucks. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (7) | Recommend This Article (27)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 15, 2012, at 11:11 AM, seattle1115 wrote:

    I'll become a believer in SodaStream just as soon as the one I bought for my wife stops gathering dust on the kitchen counter. As it is, I think the machines work poorly and the consumables are ridiculously expensive. It's an excellent example of what my father (who worked in general merchandise retail all his life) called a "closet appliance" - a gadget that people buy as a gift, and which the recipient eventually shoves away in a closet and forgets.

  • Report this Comment On June 15, 2012, at 2:12 PM, CromulentBrad wrote:

    sodastream is a dying fad. next summer you'll be able to buy all you want at any number of garage sales, right next to the quesadilla maker, hot dog warmer, pizza stone, margarita blender...

  • Report this Comment On June 15, 2012, at 7:34 PM, doubting wrote:

    I understand that in your cursory analysis you can say as much but saying,

    "Sirius XM... is seeing revenue growth slow dramatically...."

    you are dead wrong. Could you please substantiate your statement with specific numbers? To my knowledge, siri grew revenue in 2011 at about 8% and projected 10% for 2012 to $3.3B. Its profit grew almost 800% in 2011. What is huge is that its fcf growth is projected at 70% from 416M in 2011 to over $700M in 2012. 2013 will easily see between 12% and 15% revenue growth with fcf growth at another 40%. This is the rate of growth that the company will conservatively for the next five years in a very conservative estimate.

    Of all the stocks you mention, siri has a good chance to double in the next 12 months and to quadruple in the next 48 months.

    The only thing that is holding back siri share price growth is the uncertainty caused by a hostile takeover bid by liberty media. Once this matter is resolved (worst case scenario within the next six months), the stock will run away.

    Are you trying to suggest that you do not know that?? If you are, it is said that you sharing your uneducated opinion with so many people.

  • Report this Comment On June 16, 2012, at 12:17 PM, Austin77478 wrote:

    Travis Hoium is known for his Sirius’ bashing. He never substantiates his points.

  • Report this Comment On June 16, 2012, at 2:58 PM, robwg wrote:

    The only question with NetFlix is whether it will be Amazon or Apple that kills it. Horrible management, bad business decisions and an unsustainable business model, it will not survive 5 years.

  • Report this Comment On June 16, 2012, at 4:53 PM, JohnnyYuma13 wrote:

    Those are reccomendations? You're Joking right

  • Report this Comment On June 16, 2012, at 8:01 PM, raig001 wrote:

    Are you kidding of what?

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