With growth stocks getting clobbered lately, Cathie Wood's hyper-growth-focused Ark Innovation ETF has been under pressure. The market seems to have fallen out of love with the tech sector, but the famous investor is treating dramatic pullbacks as an opportunity to build positions in stocks with explosive potential.
The multitude of risk factors on the table suggests that growth stocks could continue to see bumpy trading in the near term, but long-term investors may be able to score massive wins by following Wood's lead on some recent moves. Here's a look at three stocks recently purchased in the Ark Innovation ETF that stand out as worthwhile buys right now.
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1. Roblox
Roblox (RBLX 1.91%) provides a virtual world that plays host to thousands of games and experiences, and the company's metaverse has emerged as a popular channel for online socialization. Users can create their own games and content, and make real-world money if other players interact with their creations. The platform's user-generated content ecosystem makes way for new experiences to be added to the Roblox universe all the time.
However, the company has seen engagement growth and average revenue per user soften somewhat as some pandemic-related tailwinds have eased. As a result, Roblox's share price is down roughly 72% from its lifetime high, and the company is now valued at roughly $21.8 billion and seven times this year's expected sales.
The company's performance update for January showed that the business is continuing to add users at a healthy clip, but the market appears to have lost confidence in the stock. The business is not currently profitable and is facing growth deceleration and pullbacks along with other key metrics. Average spending per user in January is estimated to have dropped roughly 22.5% year over year , but Roblox still has an appealing growth outlook, and big pullbacks for the stock have created an attractive buying opportunity for long-term investors.
2. Zoom
Perhaps no other company embodies the concept of a "pandemic stock" better than Zoom Video Communications (ZM 0.75%). Engagement for the company's services surged amid the height of social distancing and shelter-in-place conditions, but investors have sold out of the stock as conditions have moved closer to a state of normalcy in many parts of the world.
Zoom stock is now down roughly 47% year to date, 76% from its 52-week high, and roughly 83% from the lifetime high that it hit in October 2020. Talk about a pullback. Despite the dramatic valuation slide, the business has continued to serve up solid performance, and Wood's recent moves to buy the stock suggest she continues to see plenty of growth potential ahead.
Zoom's revenue rose 21% year over year in the fourth quarter to reach $1.07 billion , and the company closed out 2021 with sales of roughly $4.1 billion -- up 55% on an annual basis. While the company is seeing growth decelerate and facing challenging comparisons as it laps periods with highly pandemic-driven engagement, it actually looks attractively valued in the context of its growth. Zoom now has a market capitalization of roughly $29.1 billion and is valued at roughly 6.4 times this year's expected sales and 27.9 times expected earnings.
3. Roku
Roku (ROKU -7.75%) is another "pandemic stock" that Cathie Wood has been buying on the heels of dramatic pullbacks. The streaming video-and-digital advertising company's share price is down roughly 57% across 2022's trading and 80% from its high.
Following recent sell-offs, Roku's market capitalization has been pushed down to roughly $13.3 billion, and it's valued at just 3.6 times this year's expected sales. The company's leading position in the streaming-hardware space paved the way for it to build a fast-growing digital advertising unit, and it has continued to post strong performance despite the easing of some pandemic-driven tailwinds. Roku's revenue surged 55% year over year in 2021, and gross profits surged 74% compared to prior-year to reach $2.285 billion.
This is another instance where tough comparisons to pandemic-driven performance are showing up in the form of substantial growth decelerations, but the company's guidance for revenue growth of roughly 25% in the first quarter hardly looks extremely distressing in context. Television advertising budgets are still in the early stages of migrating to streaming-based distribution, and Roku is in a strong position to continue serving up wins, despite what its recent stock performance might suggest.
