2 Growth Stocks That Could Double Next Year

With the stock market trading at or near all-time highs, investors have to work extra hard to find good value. It's not enough to look at conventional names that are mainstream and popular, instead, bargain hunters need to examine areas of the market that have potentially been overlooked.

GoPro (GPRO 3.53%) is trying to earn back investor confidence after venturing to the brink of failure, but its recent earnings results suggest the action camera company is back and truly better than ever. 

And Cohu (COHU 0.83%) is playing a crucial role in resolving the worldwide semiconductor shortage, developing testing and handling equipment for the industry's largest manufacturers. It recently transitioned into profitability and is firing on all cylinders.

Image source: Getty Images.

Both of these companies are set up for a strong 2022 that could see their stock prices doubling in value as the market catches on to their recent success.

1. GoPro is back

After the company struggled with a one-dimensional business model, it has transformed in the last 12 months to open brand new revenue streams and take control of the sales process by leveraging its website to sell products directly to consumers. The company now has drastically higher profit margins that have driven earnings back into positive territory. 

Data source: GoPro.

Consumers are spending an increasing amount of money with GoPro, with the average selling price of its products growing 15% to $345 in the second quarter. They're buying higher-end models like the HERO9, which shoots video in 5K and is the No. 1 selling camcorder in the U.S. right now.

Subscriptions are a new revenue stream for the company. Loyal GoPro customers can now pay $49.99 per year for a range of benefits, including exclusive product discounts, unlimited cloud storage, and camera replacements -- and growth is booming. 

Data source: GoPro.

Subscriptions boast a 70% to 80% gross margin, and in 2022 they are expected to generate $90 million in recurring revenue. 

GoPro is once again a profitable company, with analysts predicting $0.66 in earnings per share for 2021, giving the stock a current multiple of 15 times projected earnings. With $1.1 billion in projected revenue and a market capitalization of $1.5 billion, it trades at just 1.36 times sales. 

But those earnings estimates might be conservative with regions like Asia and Pacific growing rapidly. There's a seasonality factor for GoPro, where sales differ between winter and summer. For example, between the second quarter (winter in Asia) and the fourth quarter of 2020 (summer in Asia), revenue rises almost 400% in that region.

Data source: GoPro. APAC = Asia and Pacific region.

With the growth rates GoPro is delivering, it could expand its earnings multiple closer to the broader Nasdaq 100 index at 36 times. That would mean a share price of over $23 based on 2021 earnings, or over $28 based on 2022 estimates of $0.80 per share -- but it might do even better. 

2. Cohu is a semiconductor-service powerhouse

Cohu fills an important gap in semiconductor manufacturing, offering advanced testing and handling equipment that is often too niche to be developed in-house by producers. As the global chip shortage continues to cripple car manufacturers, consumers are faced with higher prices and fewer choices, so Cohu has recently placed extra focus on the automotive segment. 

Image source: Getty Images.

In fact, the automotive component is now the company's largest, representing 18% of total revenue. It continues to attract new customers through its Neon inspection platform, designed for small, fragile chips often found in vehicles. 

Cohu grew revenue by 70% in the second quarter, but most importantly it generated a strong profit with $1.92 in earnings per share. It included a one-time windfall from the sale of its printed circuit board business, but even with that stripped out, it still delivered $0.89 in EPS. 

Data source: Cohu.

Cohu's base of operations is in the U.S., but it generates the overwhelming majority of its revenue offshore. Yet, since over 60% of semiconductor manufacturing occurs in Asia, this is to be expected -- although it presents some political risks as instability is a growing theme in certain parts of the region.

Analysts expect the company to deliver over $900 million in revenue for the 2021 full year, meaning it trades at less than two times sales. It hasn't generated a full-year profit since 2017, as it has been investing heavily in research and development, so there hasn't been much excitement about the stock.

But Cohu is expected to earn $3.12 per share this year, placing it at just 10 times projected earnings. Compared to the iShares Semiconductor ETF, which trades at 36 times, the stock looks extremely cheap -- especially with profitability likely to be a regular occurrence going forward. 

This company finds itself in the right place at the right time and should continue to experience robust demand for its products and services. It's not unrealistic for the stock price to double from here, and one Wall Street analyst from Rosenblatt Securities even has a price target better than that, at $65 a share.