Buying top growth stocks during temporary sell-offs can be a very profitable venture. More often than not, selling activity around growth stocks comes from early investors taking profits after a short-term setback to their growth. Once the firms get their act together, they can attract new inflows of capital and reignite momentum.
Some of the best stocks in this category right now are Peloton Interactive (PTON 2.85%), Maxar Technologies (MAXR), and Teladoc Health (TDOC 2.50%). Shares are on sale, with declines of nearly 50% since their highs earlier this year. Let's look at how the digital fitness company, the space intelligence firm, and the telehealth provider can generate wealth for investors.
1. Peloton Interactive
Peloton has found itself in hot water after reports emerged of manufacturing defects in its Tread+ treadmills. From Sept. 2018 to April 2021, the firm sold 125,000 units to customers. Its inherent safety issues lead to one death, as well as 29 moderate to serious injuries. The company has announced a recall of all its Tread and Tread+ treadmills. Altogether, the equipments under recall are worth about $553 million. Peloton is offering customers full refunds and repairs.
But I think that this issue will likely become a one-time setback for an otherwise iconic stay-at-home brand. For starters, the firm has over $2.69 billion in cash and investments on hand to offset potential recall liabilities. Second, in Q3 2021 (ended March 31), Peloton grew its revenue 141% year over year to $1.263 million. Simultaneously, its digital subscriber count grew by an astonishing 404% to 891,000. Over $5.4 million people are Peloton members. The digital fitness company is close to breaking even in terms of net income.
The heart of Peloton's business remains its signature tablet-integrated indoor bikes. Its setup allows customers to perform at-home cardio exercises while watching a live stream from a fitness coach, and compete with other Peloton users on a local leaderboard. The bikes are not affected by the recalls.
Aside from individual use, Peloton also has a substantial opportunity to mass deploy its bikes in establishments like hotels and fitness centers. Overall, I would highly consider grabbing some shares at 7.7 times revenue, given its solid growth rate before the recall occurred.
2. Maxar Technologies
Maxar is a leading provider of satellite imaging and space infrastructure. Since its inception, Maxar has launched more than 285 spacecraft with has 90 geostationary satellites currently in service. It has more than $25 billion in project backlogs over the next five years, mainly from government defense contracts.
At the end of the day, satellite servicing is a high-maintenance, capital-intensive business. The company made exhausted efforts to recover its SiriusXM satellite in April due to a payload failure, which ended up costing Maxar a total cost of $28 million.
Hence, its revenue only grew marginally (+3% year over year) to $392 million in Q1 2021. Nevertheless, the firm expects to generate $1.77 billion in sales and $255 million in operating cash flow for the full year. This is still a great space stock to buy now, trading at a mere 6.9 times earnings.
3. Teladoc Health
One of the world's top telehealth platforms is facing headwinds after PepsiCo (PEP -0.06%) stopped using the service due to a lack of integration with its existing health plans. Keep in mind, PepsiCo's 120,000 U.S. employees account for only a fraction of the firm's 52 million paid U.S. members. Teladoc has sunk ample capital into becoming a one-stop medium for healthcare needs, providing consultations for primary care, behavioral health, chronic illnesses, and telepharmacy. It has thus far lagged behind in terms of providing enterprise healthcare.
Until the massive shift to employer-based telehealth solutions completes, Teladoc remains the king of "commodity" telemedicine. During Q1 2021, its revenue grew by 151% year over year to $453.7 million. At the same time, its operating income less non-cash expenses (EBITDA) increased 429% to $56.6 million. In addition, its urgent-care-based model can quickly scale across the 175 countries it operates in (as opposed to an employer-based one). Since it is already an integrated stop for telemedicine, the company could develop an enterprise healthcare solution right away to match the shifting consumer dynamic. For all its growth, Teladoc stock is still well worth a shot it at 11 times forward revenue.