Growth stocks have the potential to deliver exponential returns for shareholders. That ability is magnified through buying and holding investments for five or more years. It can also help to buy growth stocks when they are out of favor in the market, which is precisely the scenario they are in right now. The market has shunned growth stocks as inflation rises, and the Federal Reserve has started raising interest rates.
Roblox (RBLX -0.23%) and DocuSign (DOCU -0.84%) are down 57% and 32%, respectively, so far in 2022. Each is an explosive business that is proliferating. The sell-off creates an opportunity for long-term investors to scoop up shares of these excellent growth stocks at a discount.
Roblox is a metaverse pioneer. Users can join its platform and virtually engage with the environment and friends. Every day, over 55 million people log onto its app, which is free to join and use. That was 28% higher than at the same time the year before. The company makes money by selling an in-game currency called Robux, which is required to experience premium features.
Revenue has exploded from $325 million in 2018 to $1.9 billion in 2021. The coronavirus pandemic put fuel on the fire, and the business gained momentum as millions of kids were sent home for remote learning and after-school activities were canceled. Parents felt better letting their kids play with friends virtually instead of in person with a potentially deadly virus in circulation.
The fact that Roblox grew daily active users by 28% in February, despite most children being back inside classrooms, is impressive. Nevertheless, the economic reopening is taking a toll on the business. The headwind can partly explain why the stock is down in 2022. Even so, that's no reason to panic and is an expected outcome. Roblox is still growing users and revenue despite the near-term challenges.
DocuSign is a digital signature facilitator that benefits businesses, individuals, and the world simultaneously. If you have a business that regularly needs to get agreements signed, then DocuSign can digitize your process, saving you time and money. So far, 1.1 million organizations have signed on with DocuSign, and I would imagine more will follow. There is too much waste involved with getting agreements signed on paper.
Unsurprisingly, explosive customer growth has translated into explosive revenue growth. From 2016 to 2021, DocuSign's sales went from $381 million to $2.1 billion. Like Roblox, the pandemic put fuel on the fire as it was a no-brainer to switch to digital signatures rather than bringing people together to sign documents. Signers certainly appreciate not driving to an office to put pen to paper. Meanwhile, the company is doing great things for the planet, estimating that it has saved six million trees.
Moreover, despite facing headwinds from economic reopening, analysts expect DocuSign to grow revenue by 17% for the next two years.
Roblox and DocuSign are trading at bargain prices
The market's tepidness toward growth stocks of late and headwinds from economic reopening have these two explosive growth stocks selling at a relative bargain. Roblox and DocuSign are trading at near their lowest price-to-free-cash-flow ratios in the past year. The explosive growth and bargain prices are two excellent reasons for investors to buy Roblox and DocuSign in 2022 and beyond.