The end of the year is a natural time to look back at the past 12 months and take stock of how your portfolio performed. For those holding stock in many growth companies, 2021 wasn't what they may have hoped. But that isn't necessarily a bad thing -- if you have the right outlook.
For growth stock investors, the beginning of 2022 presents some opportunities to buy stocks that have a bright future but have seen their stocks beaten down by the market. Let's look at three banged-up stocks that investors might want to consider buying right now.
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1. Roku
Roku (ROKU 5.90%) started 2021 strong and saw its stock price top $490 a share at one point this summer. But when the broader tech stock sell-off began in the last quarter of the year, Roku got hit and ended the year at $228 a share, down about 54% from its high. While the third-quarter earnings report included some slowdowns that concerned investors, the metrics that will propel Roku are still all headed in the right direction.
The company has two reportable segments: player and platform. Player consists mostly of hardware sales. While the physical Roku device may be what comes to mind when investors think about the company, it's actually the platform segment and its advertising and subscription revenue that make Roku a great investment.
The company looks at gross profit, hours streamed, and active accounts to evaluate itself. On those metrics, Roku looks strong. In the third quarter (ending Sept. 30), gross profit grew 69% year over year, resulting in a gross margin of 54%. Streaming hours increased by 21%, a pace that outperformed the company's competitors, and active accounts grew 23% over the third quarter of 2020. While this was a substantial slowdown, management attributed this to the supply chain disruptions that impacted TV sales, where its built-in Roku operating system helps drive new account growth.
Management believes the supply chain issues will impact the fourth quarter's results as well. Even with those anticipated headwinds, if the company hits the midpoint of its fourth-quarter guidance, that will result in a 37% year-over-year increase in revenue and a gross profit increase of 26%. Both are respectable gains and should only get better in future quarters as the supply chain improves. Roku's forward price-to-sales (P/S) ratio is 8, the lowest it's been since the pandemic low in the spring of 2000.
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2. Peloton Interactive
It's been a rough past few months for Peloton Interactive (PTON 2.20%). When it reported fiscal 2022 Q1 earnings on Nov. 4, share prices dropped 35% the next day. It hasn't gotten much better. The stock ended 2021 at $35.76 a share, down 79% from 52-week highs set in January 2021. While the latest quarterly results did present some reasons to worry, the massive sell-off has led to an attractive valuation for investors who think this strong brand has better days ahead.
It's true that metrics like revenue and average monthly workouts per subscription have decreased sequentially over the past few quarters. But zooming out a bit shows that over a two-year time frame, revenue has grown 253% and average monthly workouts per subscription are up 42%. It makes sense that recent quarters would look bad when the results are being compared to the height of the pandemic lockdowns, but the longer-term trends are positive.
In the most recent quarter, the high-margin subscription part of the business was 38% of total revenue, but that was up from 21% the year prior. While gross margins were down in the last quarter, Peloton was dealing with a recall of its treadmill, which followed a delivery issue where demand outstripped supply, resulting in large expenses to eliminate the backlog. Both of these issues should be resolved and margins should start to improve.
Peloton is one of the most popular products and brands around. Its Net Promoter Score, an indicator of customer satisfaction, is 70, up from 50 two years ago. It's clear that customers are still in love with the product. Currently trading at a forward P/S of 2.5, the stock is valued way below its potential and is one to buy right now.
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3. Teladoc Health
Shares of Teladoc Health (TDOC 1.74%), a provider of virtual healthcare services, ended 2021 trading around $92, down 70% from 52-week highs set in February and nowhere near the S&P 500's 26.9% gain for the year. This likely came as a shock to investors who excitedly bought early in the year, pushing the price to its high of $308. A look into the company's performance makes the stock's sell-off seem like an overreaction.
In the third quarter (ended Sept. 30), Teladoc reported year-over-year revenue growth of 81%, all the more impressive considering the comparable quarter from 2020 -- amid the pandemic and before vaccines -- saw revenue grow 109%. The company is guiding for a 41% year-over-year increase in the fourth quarter, which would be up against an even tougher comparable quarter from 2020 when revenue was up 145%. The bottom line is that Teladoc has grown its revenue consistently while keeping gross margins consistently in the mid-60% range.
The number of users is also growing. In the third quarter, users grew 37% year over year, even with management's admission that more people were comfortable returning to in-person healthcare visits. That's impressive considering users are no longer as reliant on telehealth as they were during the height of the pandemic.
Teladoc is also seeing a highly publicized acquisition start to pay off. The majority of its revenue comes from its access fees, which are subscription-based and therefore higher margin. Access fees grew 99% year over year in the third quarter, increasing their percentage of overall revenue from 78% to 87%. Management attributed this increase to the October 2020 acquisition of Livongo, a digital health platform that focuses on servicing people with chronic conditions. If this trend continues, the company should see continued gross margin improvement, which will help it eventually become profitable.
Teladoc is still a leader in an industry that is projected to reach an annual market size of over $600 billion by 2028. With 2021 revenue of $1.1 billion, the company has a huge runway ahead of it. It has shown impressive, consistent revenue and user growth and currently trades at a P/S of 7, near where it was at the beginning of 2018. Considering the results and future market opportunity, Teladoc is a no-brainer stock to buy right now.
