Unless you're living under a rock, you've probably noticed how many top growth stocks have gotten beaten to a pulp over the past year. It's not hard to find former high-flying stocks that have fallen in price by 50%, 60%, or 70% from their highs.
But believe it or not, in the future, many investors will look back at this year as a golden opportunity to buy quality growth stocks at low prices. You can double your money with a diversified group of winners, and it'll only cost you $500 to do it.
1. Roku: The streaming company with supply chain headaches
Streaming media hardware and software platform Roku's (ROKU -2.62%) stock price has fallen a whopping 75% from its high over the past year and now trades at roughly $112 per share. The company recently reported fourth-quarter earnings for 2021. Shares fell sharply, likely because of a disappointing revenue outlook for 2022, as well as supply chain issues for its hardware and increasing investments into its Roku Channel that are hurting profits.
Investors would be wise to acknowledge these short-term struggles but understand the difference between damaged stocks and broken businesses. The company has continued to build its user base, hitting 60 million in 2021 Q4, a 17% year-over-year increase. Meanwhile, platform revenue grew 49% over 2020, which is Roku's advertising business and the primary profit engine for the business.
The stock's dramatic tumble has brought shares to a price-to-sales (P/S) ratio of just 6, compared to as high as 32 just over a year ago. The company remains a strong player in the streaming space, and as advertisers continue migrating their marketing budgets to new channels like streaming platforms, Roku is a direct benefactor. It may take time for Roku to approach new highs, but it wouldn't take much at this point to see the stock double.
2. Teladoc Health: The out-of-favor pandemic winner
Telehealth became a big trend during 2020 when COVID-19 kept people isolated in their homes. This created a surge of growth for telehealth leader Teladoc Health (TDOC 0.22%), which doubled its revenue from 2019 to 2020. But investors have cooled on the stock after a massive $18.5 billion acquisition for chronic healthcare technology company Livongo in 2020, and management projected 25% to 30% revenue growth over the next several years. Shares are down more than 75% from their highs.
Investors need to look under the hood once again. The business benefited from a temporary surge during the pandemic, but the company is still growing at a double-digit percentage pace moving forward. Teladoc isn't losing the growth it achieved in 2020. Meanwhile, the Livongo acquisition has led to the launch of Primary360, which Teladoc launched in late 2021 to let patients access all of the company's services from an all-in-one digital interface.
I would argue that the stock's sell-off has gone too far, falling from a P/S ratio of 24 to just over 5. The stock market can overreact, sometimes creating bubbles and then going too far the other way when they pop. Teladoc should probably be somewhere between these two extremes, but there's a case for the stock to at least double from here over time.
3. Meta Platforms: The stale social media giant
Social media giant Meta Platforms (META -1.92%), formerly Facebook, is currently in the middle of evolving into the company it wants to be in the future. It's changed its name and announced upcoming investments totaling billions of dollars to build in the metaverse as its next big business idea.
However, the company's most recent earnings report, in Q4 of 2021, showed that growth in its existing business might be slowing. Facebook's daily active users declined for the first time, falling from 1.93 billion to 1.929 billion. The company's revenue guidance for Q1 2022 called for just 3% to 11% year-over-year growth after revenue grew 37% year over year in Q4 2021. Management noted that privacy changes in Apple's iOS software are hurting its ability to target users with ads.
It's fair to acknowledge that growth could be slowing at Meta Platforms. The company is massive, doing $118 billion in revenue in 2021. However, investors seem to be overlooking how profitable the business still is. Meta Platforms generated $12.5 billion in free cash flow in Q4 2021. The stock itself now trades at a price-to-earnings ratio of 15, which is almost half that of Coca-Cola. According to analyst estimates, Meta could grow earnings per share by 14% annually over the next three to five years, nearly twice as fast as Coca-Cola's expected growth. Does Meta Platforms deserve such a steep discount? It seems hard to make that argument.