When you think of growth stocks, you probably imagine a company increasing its revenue at high double-digit rates, maybe even 100% year over year. While that kind of performance is amazing to see, it often demands an extremely high valuation.
However, if you find companies that are growing at a relatively slower pace today but with a major opportunity ahead of them, you can pick up these stocks at a low price, before they take off. Finding such candidates can be tough, but I have three stocks that fit the bill. Here's why Pinterest (PINS 0.89%), Planet Labs (PL 1.72%), and Matterport (MTTR -4.17%) are dormant growth stocks ready to break out.
Image source: Getty Images.
Pinterest: An advertiser's dream
Pinterest was a 2020 darling as it benefited from pandemic-related lockdowns. However, 2021 has seen much of the global economy reopen, allowing people to work, travel, and socialize away from home, reducing the amount of time they spend online. This has resulted in declining growth for Pinterest. Revenue was still up an impressive 43% in the third quarter, but monthly active users grew just 1% year over year. U.S. users fell 10% over the same period.
However, the company's platform is still an amazingly valuable avenue for advertisers, because unlike other social media platforms, ads can enhance the user experience as they seek to discover new products and services. Thanks to this unique advantge, Pinterest's average revenue per user (ARPU) is still growing rapidly. Third-quarter ARPU increased 37% year over year, and in its international markets, that figure was up 81%.
Pinterest's primary growth opportunity does not lie in user growth but rising ARPU. The company already has over a quarter of all Americans on its platform, but compared to its social-media peers, Pinterest's ARPU is nowhere near its full potential. Meta Platforms, for example, has a global ARPU of $10.00, much higher than Pinterest's $1.41.
With a platform where consumers want to see ads to gain inspiration, Pinterest has an unrivaled ability to make advertising more valuable. This means its ARPU could surpass even some of the biggest companies in the space. Its stock trades at 8.9 times sales, close to the lowest levels in Pinterest's short history on the market, and with ARPU expanding quickly, it's an attractive value at today's prices.
Matterport: A metaverse play
Matterport's growth has been stagnant lately. The company allows businesses to capture 3-D images of real-world spaces, bringing them into the digital world. But in the third quarter, revenue grew just 10% year over year.
The company appears to be struggling to convert free users to paying subscribers for its services. When companies or individuals want to keep multiple copies of their spaces on the cloud, they have to pay for a subscription, but Matterport also offers a free version for users who only want one space. Nearly 90% of the company's 439,000 subscribers are free users, which would explain why the total subscriber count grew 116% in the latest quarter, yet subscription revenue only increased 36%.
This slower growth and low conversion rate could change with the metaverse. If the metaverse gains the traction and popularity that many people think it will, Matterport could be a major beneficiary. In the metaverse, there will likely be a digital economy where companies operate, and businesses that already exist in the real world can turn to Matterport to bring their spaces online. Matterport is the only business doing this at scale, allowing it to capitalize on this potential over the next decade.
Management has made it clear the metaverse is a part of their vision for the future. In the latest earnings call, CEO RJ Pittman said, "It's easy to see how a platform like ours could be very interesting, very relevant in the future of all of these virtual platforms that are getting created, including the metaverse."
Planet Labs: Capturing the world's data
Planet Labs only recently began trading pubicly, and since its debut, shares have plummeted. The company went public via SPAC, and in just one month, shares fell over 45%. The sell-off has brought the company's valuation down to just 10.1 times sales.
Planet operates a fleet of 200 satellites that can take pictures of every single landmass on Earth, every single day. This is the largest Earth-imaging fleet in history, and considering each satellite costs roughly $300,000 to produce, it will likely maintain this leadership position. As the leading Earth-imaging company, Planet has been able to attract over 740 customers, including agricultural societies looking to stop deforestation or climate change and government bodies.
While the company is unprofitable, its gross margins are improving. Fiscal third-quarter margin improved seven percentage points year over year to 34%, thanks to the longer useful life of its satellites. Through the first three quarters of fiscal 2022, Planet Labs' net loss grew 2% year over year while revenue increased 13%, showing the company's steady profitability improvements.
Planet Labs went public to raise cash for its newest growth opportunity: data analytics assistance. Currently, the company primarily sells its images as part of a subscription. However, the company wants to increase its analytics offerings, not only serving as the source of its customers' data but providing the tools for analyzing its images.
Revenue growth is relatively slow today, growing just 16% year over year in the latest quarter, but if Planet Labs can infuse data analytics tools into its services to help its customers, this could create much more value and stickiness around its products. Progress in these efforts would further expand customer relationships with the business and boost growth far above today's levels.
