After brutal sell-offs in recent months, growth-dependent tech stocks have recently been regaining some ground. However, many companies in the category still trade down dramatically from their highs, and there's still time to snatch up some promising technology players at huge discounts.
With that in mind, a panel of Motley Fool contributors has identified top growth stocks that trade down at least 35% from recent highs. Read on to see why they think it's worth buying these stocks right now and holding for the long term.
Pin this value and growth stock to your portfolio
Jason Hall: Pinterest (PINS 1.28%) investors probably feel like they've been on a roller coaster over the past few years. Off to a bumpy start, up a couple of giant hills, and then back where they started:
That's right: Pinterest shares are within just a few percentage points of where they were when the company went public in 2019. The S&P 500 and Nasdaq-100 indexes have gained 63% and 98% respectively, over the same period, further seeding disappointment in Pinterest as a public company. But the real injury has been suffered by investors in between its initial public offering (IPO) and today; shares are down as much as 72% from the highs; most investors in the company have lost value.
Shares haven't fallen for no reason: Active users have declined as people have returned to in-person activities after the lockdowns at the height of the coronavirus pandemic. But I expect its growth is far from over, with a user base that's a fraction of other social media platforms.
Most importantly, Pinterest continues to grow a really important metric: ARPU, or average revenue per user. As other social media platforms deal with monetization challenges, Pinterest continues to grow the premium advertisers are willing to pay, with ARPU climbing 23% in the fourth quarter, driving Pinterest's 20% revenue growth.
It's also a cash cow, generating almost $744 million free cash, at 28% cash margin in 2021. At recent prices, you can own that cash-generating business for a value-stock multiple of 22 times free cash flow. That's value-stock pricing for a strong, growing company.
The Trade Desk is in the right business at the right time
Parkev Tatevosian: The Trade Desk (TTD 1.06%) is a buy-side platform that enables digital ad purchases. In other words, it helps businesses looking to reach customers through digital channels like connected TVs, smartphones, and tablets. That's becoming increasingly important as consumers spend more and more time connected to the internet.
The Trade Desk is riding that wave of momentum and has grown sales tenfold from 2015 to 2021. The trend is unlikely to reverse. First, consumers appreciate the benefits of a world where access to the internet is abundant. Streaming video content, music, and podcasts are popular. If anything, people want more material they can consume this way.
Also, digital advertising is more efficient. Marketers can more accurately measure the results their spending is delivering. How many clicks did your ad generate? How many purchases? These can both be measured with some precision through digital channels. That's in stark contrast to non-digital media like newspapers, billboards, or cable TV. How many purchases did your TV commercial generate? You can get estimates, but with a wide margin of error.
It's no surprise The Trade Desk grew revenue more than tenfold from $114 million in 2015 to $1.2 billion in 2021. Fortunately for investors, The Trade Desk is still a tiny player in the massive advertising industry that generated $763 billion in revenue in 2021. Purchasers of the stock today can ride along higher with The Trade Desk as it grabs a more significant share. To make The Trade Desk's stock more enticing right now, it's down 38% off its high, an opportunity that may not be around for long.
This gaming stock could bounce back in a big way
Keith Noonan: CD Projekt (OTGL.Y 2.39%) is a mid-cap player in the gaming industry based out of Warsaw, Poland. The company is best known for The Witcher series and Cyberpunk 2077, and some might even say the developer is infamous for the latter title.
Cyberpunk 2077 likely stands as one of the most hyped-up games of all time, but unfortunately the title was released with bugs and other shortcomings that resulted in it failing to meet critical and commercial expectations. The underperformance has caused the company's stock to fall roughly 67% from its high.
At this point, it's fair to say that Cyberpunk 2077 has been a disappointment, but the good news is that the title might not go down that way over the long term. Thanks to downloadable content updates, video games have longer lifecycles than ever before, and it's possible for titles to bounce back from setbacks so long as subsequent updates deliver the goods.
Consider that Epic Games' hugely successful Fortnite was actually something of a flop upon release. Like Cyberpunk 2077, Fortnite had an incredibly lengthy development cycle and underperformed upon its initial release, but it wound up recovering and going on to be a massive success after new modes were added and the game's focus was shifted.
CD Projekt has the chance to turn Cyberpunk 2077 into a winner over the long term, and The Witcher is a franchise that still looks to have plenty of life in it. In addition to these core properties, the company is working on new games, and it also operates a platform for digital-game sales and sharing. With shares down big and feasible avenues to recovery, the Polish gaming company's stock could bounce back and reward patient investors.