With 2020 and all of its volatility behind us, investors can hopefully begin to breathe a little easier now. But there are never any guarantees in the stock market, no matter what the investment climate looks like. Still, there are some companies whose futures look very bright, and whose stocks look like they'll skyrocket in the coming year and over the long term. Airbnb (ABNB -2.01%), Roku (ROKU 1.30%), and Peloton Interactive (PTON -2.27%) are three hot stocks to buy this month.
Disrupting the travel industry
Airbnb was one of the hottest recent initial public offerings (IPOs), debuting in December at $68 a share. It quickly skyrocketed to $163, but has since fallen to $140.
No one's questioning the company's industry dominance and future growth prospects. As of the end of 2019, Gross booking volume (GBV) increased 29% to $38 billion and revenue increased 32% to $4.8 billion. That growth was severely impacted by COVID-19 and travel bans, and GBV and revenue dropped 39% and 32%, respectively.
The company's model has become so popular that the brand itself is now the term for vacation rentals. And the traditional travel industry leaders who have dictated travel norms for decades are now copying Airbnb's focus on local experiences and private residences.
Also in the company's favor, it's been able to generate cash, closing out 2019 with more than 90 million after company investments. It's been cash positive all along, with its low-cost operating model of being a go-between for hosts and guests.
2021 might be an explosive year for the company as pent-up travel demand bursts into higher sales for distressed travel companies. As vaccines roll out, that's becoming more and more of a likely reality.
The question is how much of that growth is already baked into the share price. The company's already been downgraded by one analyst, and even the new, lower price is still sky-high. But there's so much to like about Airbnb, and investors may not get a chance to buy shares on sale.
A different streaming model
Roku had a breakout year, and its stock performed better than its peers' -- up 148% in 2020, versus 67% for Netflix (NFLX 0.77%) and 25% for Disney (DIS 0.25%).
Roku sells equipment for streaming, such as television screens that connect to the internet, at a variety of prices. Devices stream free content, but users can also stream their paid subscriptions, like Netflix. Roku also has its own channel, the Roku Channel, which features ad-supported free content.
The company hasn't been profitable historically, but it did post a surprise profit in the third quarter ended Sept. 30. It also posted a 73% increase in revenue and 57% increase in player sales. Active accounts rose 43% to 46 million, which is way behind Netflix's nearly 200 million and Disney's more than 120 million. But that gives it room to catch up, and at the current rate, it's growing fast.
After a hiatus at the beginning of the pandemic, advertisers were back, spending more money on streaming channels like Roku in place of traditional television programming. Roku was the recipient of some of that money, and first-time clients doubled in the third quarter. This trend is likely to keep going in 2021 as streaming grows in popularity and subscriptions.
The Roku Channel was the platform's highest grower, giving it lots of future potential. Streaming is only getting bigger, and Roku has carved out a niche with its streaming-friendly devices and free content model.
The future of exercise
Peloton has come a long way since its IPO in late 2019. So much has happened in the ensuing months, and Peloton has grown as a company to keep up with the times.
That means that in addition to its ultra-luxury workout equipment, its connected fitness subscriptions have surged, and it's launching more affordable products.
Peloton was perfectly poised to succeed through the pandemic, and the company's stock soared 446% in 2020. In the first quarter ended Sept. 30, revenue increased 232% and paid connected fitness subscriptions grew 382%.
Will the success continue? I believe it can. Some of Peloton's best performance took place after the worst of the COVID-19 closures. It's a great company that offers real value for customers, and now that they've had a chance to adopt the company's products and services, they won't necessarily return to their previous habits so quickly. As of the first quarter, the 12-month retention rate was 92%, demonstrating that customers like Peloton's products. And equipment owners who invest more than $1,800 in a connected fitness bike are likely to keep up their subscriptions.
Peloton's stock is trading at 553 times 12-month trailing earnings, an obscene valuation. But the company is making moves to keep growing, such as the recent acquisition of Precor to open up a wider market. Peloton is still a hot stock that can grow and bring value to investors.