Valuations for many growth stocks are getting expensive, which could limit returns in the near term. But if you know where to look, there are some hidden gems trading at reasonable valuations that could be the market darlings of 2022 and beyond.
Two trends that will surely lead to big returns are the emerging digital economy and demand for computer peripherals from the growing adoption of remote work. Here's why Logitech International (LOGI +1.82%) and Coinbase Global (COIN +6.23%) are well positioned to tackle these opportunities and deliver major gains for investors.
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Logitech: A leading brand of computer peripherals
Logitech has seen growing demand in recent years from a few different trends. One is the increasing popularity of gaming, particularly esports. CEO Bracken Darrell previously said, "Gaming will grow to become the biggest collection of sports in the world one day from both a participant and a spectator standpoint." The company is also benefiting as more businesses shift to a hybrid workforce, allowing employees to split time between working at home or at the office. Both opportunities are boosting sales of Logitech's mice, keyboards, webcams, and headsets.
The share price has fallen this year as a result of difficult year-over-year comparisons with calendar 2020 when the stay-at-home environment drove sales through the roof. However, the gaming peripherals market is expected to roughly double in size to $8.7 billion by 2027, according to Research and Markets. That's a strong tailwind for Logitech's gaming business, which generated revenue of $1.4 billion over the last four quarters.
The number of remote workers is also expected to continue increasing over the next few years. Gartner estimates 53% of the U.S. workforce will be working remotely in 2022 with similar trends across Europe, India, and China.
Logitech is gaining market share across most of its product categories, but supply chain challenges could pressure near-term growth. The tough growth comparisons with last year and the near-term headwinds are giving investors a great opportunity to buy the stock at a forward price-to-earnings multiple of 18.4. These valuation levels should lay the foundation for market-beating returns.
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Coinbase: A leading cryptocurrency exchange
Coinbase is one of the largest exchanges for buying and selling cryptocurrency. It has over 73 million verified users across more than 100 countries. It is popular for its easy-to-use interface that includes helpful educational features to help new users get up to speed on the burgeoning cryptoeconomy, but it may win over millions more users as the digital economy goes mainstream.
The stock started trading in April through a direct listing and is currently down 18% from its opening price on April 14, but it's probably only a matter of time until shares bounce back. The company is growing very fast with assets on the platform rising from $36 billion in the third quarter of 2020 to $255 billion in the same period this year. The surge in demand pushed net profit up to $406 million in the latest quarter.
Investors should keep in mind management is not interested in maximizing profits right now, instead focusing on investments in new products and services to attract more users to the platform. Profits could decline during periods of soft trading volume, but Coinbase should continue to see an upward trend for its user base over the next several years, and that's the most important progress to think about.
It's estimated that up to 200 million people have used Bitcoin, but with the most popular cryptocurrency still gaining adoption worldwide, especially in developing countries, the number of people using it could reach one billion in the next five years, according to some analysts. This makes Coinbase's 7.4 million monthly transacting users look minuscule by comparison.
The opportunity is clear, but Coinbase currently trades at a relatively modest price-to-earnings ratio of 28 for a growth stock, which could look very cheap in another 10 years. This is one of the top cryptocurrency stocks to consider in this booming market.
