Investing in growth stocks tends to be a little riskier than average. Because of how these companies operate, often sacrificing profitability to attain more market share or operational growth, their stock prices can be more volatile.
With that higher risk comes the potential for larger gains. For those who buy stocks with a long-term investment horizon (several years or more), growth stocks can be an effective way to accumulate wealth. If they manage to pick the right growth stock.
My portfolio is fully allocated at the moment and I am not looking to add any new stocks right now. But if I was looking to add another growth stock to the mix, these are the two I would buy right now.
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1. Airbnb
Airbnb (ABNB -2.37%) is an anti-hotel travel company. Folks who wish to travel but avoid crowded (and often expensive) hotels have a real alternative with Airbnb. The company offers more choices to consumers than a hotel can and is built to grow efficiently. When Airbnb wants to add more available rooms, it encourages people to list more spaces on its platform. That's in stark contrast to a hotel or resort, which needs to spend millions (sometimes billions) to expand.
Airbnb took a big hit early on in the pandemic when travel effectively came to a halt. Before the pandemic, it had grown revenue by 43% in 2018 and 32% in 2019. Fortunately, several effective vaccines against the coronavirus are being administered around the world and people are once again traveling. In the near term, this could unleash lots of pent-up demand from people who have delayed taking travel vacations.
Despite positive developments on vaccines and travel restrictions, the stock price has been basically flat year-to-date. But that just means there is an opportunity to buy the stock before the outlook turns positive.
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2. Chegg
Chegg (CHGG -3.92%) is a leading direct-to-student online learning platform. It serves mostly college students who want additional support beyond what is provided to them through their educational institution. It's no surprise then that customer interest surged during the pandemic when campuses were mostly closed and teaching took place remotely. The company added millions of subscribers who engaged with the site regularly.
Chegg has a unique business model that strengthens as engagement increases on its site. Subscribers to the site get to ask 20 questions per month related to the presentations provided that Chegg's subject matter experts attempt to answer. These questions and the answers (often step-by-step explanations of curriculum concepts) are made available to all subscribers.
Moreover, the supplementary content provided is up-to-date even though the concepts that are taught in most college courses rarely change. That means it should have a long shelf life. Chegg now has more than 59 million pieces of this type of content and it continues to grow. The larger this database grows, the more attractive the service becomes to existing and potential subscribers.
Still, the stock price is down about 6.3% year to date as investors are concerned about how a return to in-person learning will affect the company's future growth. While its growth rate may slow down, the benefits derived from the pandemic will pay dividends for a long time. Further, schools were providing online courses to supplement their in-person courses long before the pandemic. It's likely that in the aftermath, the selection of online-only courses will continue to expand.
Investor takeaway
Airbnb and Chegg are two growth stocks that have not received much enthusiasm from investors in 2021. Yet they both have excellent long-term prospects and favorable risk-versus-reward trade-offs that make them good buys for growth stock investors.
