For the better part of the past 13 years, growth stocks have led the broader market higher. Low lending rates have given fast-paced companies access to cheap capital, which they've used to hire, acquire, and innovate.
But in recent months, growth stocks have taken quite the beating. In fact, the tech-focused Nasdaq Composite retraced as much as 22% between its mid-November all-time closing high and mid-March, officially putting the index in bear market territory.
The good news is that all notable pullbacks in the broad-market indexes have eventually been wiped away by a bull market rally. In other words, every significant pullback in the market is an opportunity for patient investors to scoop up high-quality growth stocks at a discount.
Image source: Getty Images.
Three growth stocks currently stand out as incredible deals that can make you richer in April, and most importantly, well beyond.
PayPal Holdings
The first growth stock that's a screaming buy in April is fintech company PayPal (PYPL 2.90%). Shares of the company have retraced 62% since hitting an all-time intra-day high of $310 in July 2021.
PayPal's recent weakness hinges on two concerns. First, investors have been worried about the expansion of the cryptocurrency market and what the digital payment landscape might look like if blockchain-based payments take off. The second issue is PayPal's underwhelming 2022 financial guidance, which called for slower net new account growth and a lower-than-expected increase in year-over-year earnings. PayPal partially blamed this weakness on historically high inflation.
While the above concerns are tangible, neither should worry long-term investors. That's because virtually all of PayPal's key performance indicators (KPIs) are headed in the right direction.
As an example, total payment volume (TPV) on the platform grew 33% in 2021 to $1.25 trillion and is expected to surpass $1.5 trillion in 2022. Double-digit TPV growth should continue to translate into double-digit sales growth.
Furthermore, 19.3 billion transactions were undertaken by PayPal's 426 million active users last year. This works out to 45.3 payment transactions per active account over the trailing 12 months. This figure has been consistently rising over time (it was 40.9 payment transactions per active account in 2020). Not only is PayPal attracting new users, but it's seeing its existing users embrace digital payments more with each passing year.
Aside from top-notch KPI's, PayPal also has a huge runway with which to grow its business. For instance, PayPal acquired Japanese buy now, pay later (BNPL) company Paidy for $2.7 billion in September. Offering consumers the ability to finance their purchases, and creating something of a closed-loop ecosystem with BNPL, is one of the many ways PayPal can ignite digital payment growth in the years to come.
Considering that PayPal has averaged a price-to-earnings ratio of 59 over the past five years, it looks like an absolute steal at 20 times Wall Street's earnings forecast for 2023.
Image source: Getty Images.
Alphabet
Another growth stock that can make you a lot richer in April (and beyond) that's begging to be bought is tech kinging Alphabet (GOOGL 10.22%) (GOOG 9.96%). Alphabet is the parent company of internet search engine Google and streaming platform YouTube.
There's no mistaking that Alphabet has held up much better than most tech stocks. Whereas the Nasdaq Composite saw a peak decline of 22% from its high, the peak drop in Alphabet since November is just 17%. At the moment, shares of the company are less than 8% away from an all-time high. But just because Alphabet hasn't been throttled like the other growth stocks on this list, it doesn't mean it's not a top-tier buy.
When you buy shares of Alphabet, you're gaining ownership in a veritable monopoly when it comes to internet search. Google has accounted for between 91% and 93% of global internet search share over the past two years, according to GlobalStats. With such a dominant global presence, it's no surprise that advertisers will pay a premium to get their message in front of users.
What Wall Street and investors aren't giving Alphabet enough credit for are its rapidly growing ancillary operations. According to Buffer.com, YouTube is the second most-visited website based on monthly active users (MAUs). The 2.2 billion MAUs visiting YouTube are more than double that of TikTok, and about four times more than Snap-owned Snapchat. YouTube is nearly pacing $35 billion in annual run-rate revenue from ads.
Arguably even more exciting is Alphabet's cloud infrastructure segment. Google Cloud has been growing by 45% to 50% on a year-over-year basis, and is currently the No. 3 in global cloud infrastructure spending. The important thing to note here is that cloud service margins tend to be substantially higher than advertising margins. As Google Cloud grows into a larger percentage of Alphabet's sales over time, we could see Alphabet's operating cash flow soar.
Alphabet offers shareholders a sustainable annual growth rate of 15% to 20%, yet can be purchased for just 20 times forward-year earnings. It's an incredible deal for a company with so many clear competitive advantages.
Image source: Pinterest.
A third and final growth stock that can make you richer in April and well beyond is social media platform Pinterest (PINS 4.04%). Shares have cratered 72% since hitting an all-time high of almost $90 back in February 2021.
There are two key issues worrying Wall Street. To begin with, Pinterest has reported three consecutive quarters of MAU declines. Investors are rarely receptive to the idea of a social media company losing active users. Second, there's uncertainty as to how Apple's iOS privacy changes might affect ad-driven platforms. But dig beneath these superficial concerns and you'll find a rapidly growing company that's ripe for the picking by opportunistic investors.
While we'd ideally like to see Pinterest's MAUs increasing, it's important to recognize that user growth soared during the early stages of the pandemic. With people stuck in their homes, it's not shocking that Pinterest MAUs soared. It's equally unsurprising that higher COVID-19 vaccination rates have led to a short-term drop in active users. The key here is that user growth has been trending higher if we widen the lens a bit and look at a five-year span.
Investors should also note that, while MAUs declined by 6% in 2021, average revenue per user (ARPU) soared. Global ARPU jumped 36% last year, while international ARPU skyrocketed 80%. What these figures demonstrate is that advertisers are willing to pay quite the premium to reach Pinterest's user base, which stood at a still-impressive 431 million at the end of the year.
Optimists can probably dismiss worries about Apple's iOS privacy changes, too. If this were a traditional social media platform that leans on likes and other data-tracking measures to help merchants reach their users, it would be a tangible concern. However, the entire premise of Pinterest's operating model is to have its users post about the things, places, and services that interest them. Users might as well be rolling out the red carpet for advertisers.
With little standing in the way of the company's long-term growth strategy, Pinterest should be able to sustain annual sales growth of 20% to 25%. Considering shares can be purchased right now for less than 19 times Wall Street's forecast earnings for 2023, Pinterest could be the single greatest bargain of 2022.
