In looking around for supercharged growth stocks, it can be difficult to find ones that are trading under $100 a share. The rapid revenue growth these companies are seeing has often coincided with rapid stock price growth.
In the case of the three growth stocks we will discuss today, their prices have risen near or above $100 at some point in the past year but are down from those highs in 2021, mostly because of investor concern about how their business will adapt as economies are reopening. The stocks benefited during pandemic lockdowns, and the investor fear is that there will be a reversal of that trend.
These recent drops can be an opportunity for long-term investors to pounce on three stocks that have otherwise solid prospects for continued strong growth.
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1. Chewy: The move to online retail offers a great tailwind
Chewy (CHWY 0.44%) is an online pet retailer that experienced a boost in revenue and customers during the pandemic. Indeed, in its most recent quarter, Chewy reported a 31.7% increase in revenue from last year and a nearly identical 31.6% increase in active customers. Understandably, pet owners were trying to avoid brick-and-mortar stores where they could potentially come in contact with the coronavirus.
Further, as people were spending more time at home and less time with friends, family, and colleagues, they brought home pets at an increasing rate. Of course, those pets needed food, leashes, and toys to rip through. Some of that spending went to Chewy.com. And for most people, a pet is a long-term commitment. So the boost in pet ownership could boost pet spending for several years.
Chewy is also reaping the benefits of the long-run secular tailwind of shopping moving online. Certainly, that trend was accelerated during the pandemic, and while it might slow down, it is unlikely to reverse.
After falling about 7.8% in 2021, Chewy's shares are trading around $82-$83 a share.
2. Chegg: Benefiting from the pandemic, but not tied to it
Chegg (CHGG -1.53%) is one of the leading direct-to-student learning platforms. It helps high school and college students get through their coursework and acts as a supplement to resources provided to students by their educational institution. It's no surprise it experienced a surge in new users during the pandemic, raising services subscribers by 64% from the previous year to 4.6 million.
Still, universities were offering online courses long before the pandemic onset, and in its aftermath, they will probably increase the proportion of online courses to supplement in-person classes. Students who are also working have preferred that option because it removes the requirement to commute to campus, look for parking, and request time off from work if the course hours conflict with their schedule.
Chegg's stock is trading at $86-$87 per share after falling nearly 4.1% year to date.
Image source: Getty Images.
3. DraftKings: In serious expansion mode
The online sportsbook and daily fantasy sports operator is benefiting as more states are legalizing the gaming services it offers. It is now live in 12 states with mobile sports betting and iGaming in four states. Several states have introduced legislation to further expand gaming in 2021.
As it expands into more states, DraftKings (DKNG 5.38%) is adding new players rapidly, going from 720,000 to 1.5 million overall from Q1 2020 to Q1 2021. The company is not yet profitable while it is spending to acquire players as each state opens up to online gaming. However, once initial spending is completed, it could increase profits because its business is mostly automated. Once established in a state, DraftKings could face limited competition as states will only allow a restricted number of operators.
The stock is trading around $48-$49 a share and was trading down on the year until an 11% price jump in the past week put the stock up about 4.6% on the year. It's still trading well down from 52-week highs around $74 a share reached in mid-March.
Investor takeaway
As a reminder, most brokerages will allow investors to purchase fractional shares of stock. Therefore, if you only want to spend $100 to buy stocks, you don't have to limit yourself to stocks selling for less than $100 a share. That being said, if you are looking for growth stocks trading for less than $100, then you can certainly add Chewy, Chegg, and DraftKings to your watch list.
