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2 Top Growth Stocks to Buy Right Now

By Will Ebiefung – Oct 29, 2021 at 7:05AM

Key Points

  • Despite weaker than expected earnings, Snap is still a great way to bet on augmented reality.
  • Global-e Online is at the early stages of monetizing its unique niche in the e-commerce industry.

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Snap and Global-e Online are expanding their tech-focused business models to help fuel long-term success.

Want to supercharge your investment portfolio? Bet on growth stocks. These high-flying companies serve established markets in exciting new ways, helping boost revenue and profits. Let's explore the reasons why two of them, Snap (SNAP -10.29%) and Global-e Online (GLBE 4.30%), can potentially generate market-beating growth over the long term. 

1. Snap: Working to monetize its augmented reality efforts

Snap's stock has been in a world of pain after its weaker-than-expected third-quarter earnings report. But instead of running for the hills, investors should see the dip as a buying opportunity. The company is making impressive progress toward its long-term goal of monetizing augmented reality, and its bottom line is rapidly improving.

Green chart overlaid on a one-hundred-dollar bill.

Image source: Getty Images.

Snap's third-quarter revenue soared 57% year over year to $1.07 billion, and its platform gained 57 million daily active users (DAUs) for a total of 306 million. But despite the high growth rate, share prices are down by around 30% from the Oct. 21 earnings announcement over concerns about Apple's privacy changes, which are hurting Snap's ability to target and measure ad performance (along with other macro challenges like the global supply chain and labor market disruptions).

That said, Snap's long-term vision of dominating augmented reality (AR) remains intact, which will help it develop new revenue streams less dependent on third parties. In October, the company launched Arcadia, a global creative studio to help brands create AR experiences on Snapchat and other platforms. Management hasn't provided much detail on the revenue implications of its AR business. But with the industry expected to expand at a compound annual growth rate (CAGR) of 44% to $340 billion by 2028, Snap's early-mover advantage could prove lucrative over the coming decade.

Snap's bottom line is also improving with adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) tripling to $174 million per year and GAAP net losses narrowing from $200 million to $72 million in the third quarter. Despite recent declines, the stock's valuation of 23 times sales isn't cheap. But its double-digit percentage growth rate and massive opportunities for expansion in the relatively untapped AR opportunity help justify the price tag. 

2. Global-e Online: Taking a different approach to e-commerce

With an initial public offer (IPO) of $25 per share in May, Global-e has already soared by over 150% in the short time it has been public. The fast-growing e-commerce facilitator is in the early stages of scaling up its unique business model. And that could mean years, if not decades, of long-term growth for investors. 

Unlike the typical e-commerce play, which will be some spin on selling goods to consumers, Global-e takes a different approach. It aims to simplify cross-border e-commerce by providing an end-to-end solution designed to help merchants target international customers. Its platform addresses challenges like currency conversion, after-sale support, and regulations (such as taxes and duties) in 200 destination markets. 

Second-quarter revenue grew 92% year over year to $57 million. Of the total, 37% came from service fees based on a percentage of the gross merchandise value ($326 million) handled in the period. Fulfillment services represented the remaining 63% of sales. Global-e can maintain its spectacular expansion by leveraging its growing scale and shopping behavior data termed "smart insights" to improve its service for clients. 

With management expecting full-year revenue to jump as much as 69% annually to $231 million in full-year 2021, Global-e boasts a price-to-sales (P/S) multiple of 40. That's a high number. But with growth stocks, a healthy premium is expected. And Global-e seems to be at the early stages of monetizing its niche, as evidenced by its rapid expansion. 

Are these tech stocks worth the premium?

With P/S multiples of 23 and 40, respectively, Snap and Global-e Online are significantly more expensive than the S&P 500's average of just 3. But that doesn't mean these two tech stocks are overvalued. Investors are usually willing to pay more for rapidly scaling businesses with a pathway to long-term profitability. Both companies fit into this category as they establish themselves in augmented reality and international e-commerce sectors.

Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

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