The stock market is experiencing high volatility and broad selling. Several factors, including the Russian invasion of Ukraine, are making investors nervous. As difficult as it might be, times of market turbulence can be an opportunity to find good value.
Growth stocks in particular are selling off more than the rest of the market. That's why I have plucked two such stocks that investors can buy before a big rally in the market.
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1. Netflix
The streaming content pioneer has grown to reach 222 million subscribers as of Dec. 31. The company that gave birth to the industry is watching as media giants follow its path and launch their own streaming services. The rising competition could be one cause for the company's slowing growth and why the stock is down 50% off its high reached in November.
Still, subscriber growth surged at the pandemic's onset, and Netflix (NFLX -3.92%) has kept and added to that total even through the economic reopening. The boost was enough for Netflix to generate operating income of $6.2 billion in 2021. That was up from just $380 million in 2016.
It's no surprise that competitors are jumping in following Netflix, offering streaming services. The business model delivers massive economies of scale. It does not cost Netflix much more to show a movie to 100 million people compared to 50 million people. On the contrary, famous actors, producers, and directors could be more willing to work exclusively with Netflix on projects the larger it gets.
Fortunately for investors, Netflix is selling at a price-to-sales ratio of 5.2, its lowest in the last five years. It might be an excellent time to scoop up shares before a big rally.
2. DraftKings
Like Netflix, DraftKings (DKNG -0.87%) is in the middle of a huge drop. To be more precise, its stock is down 76% from the high reached in April of 2021. Investors are punishing the gaming company for consistently reporting losses on the bottom line. The only things the market likes less than growth stocks right now are unprofitable growth stocks.
That said, the company is delivering quality results from its growth investments. As of Dec. 31, it had 1.5 million monthly unique players, almost double the 883,000 it had at the same time a year earlier.
And revenue more than doubled from the prior year. In 2021, DraftKings' sales increased to $1.3 billion, up from $643 million in 2020. The mobile sportsbook and iGaming provider is heavily reliant on state legislatures to approve gambling activities and grant it licenses to operate. Once it gets the green light, DraftKings invests aggressively in sales and marketing to capitalize on the excitement and novelty in a new jurisdiction.
It is now live with a mobile sportsbook in 17 states and iGaming in five. Once it expands into all available markets, investments in customer acquisition will inevitably decrease, allowing more of the revenue to flow to the bottom line. The closer it gets to that point, the more desirable it becomes as an investment.
DraftKings is trading at a price-to-sales ratio of 5.4, the lowest in its brief history as a public company. Investors could add shares before it rallies higher.
