Many of the growth stocks that saw massive price increases in 2020 and most of 2021 have been devastated by the bear market in 2022. Some of the highest flyers have seen most of their value wiped out amid the selling.
What investors need to understand is that the significant pain of the declines for some of these stocks is likely be temporary. As the growth returns, these companies are setting the stage for an eventual recovery. It's the continued growth of companies like DigitalOcean (DOCN 3.36%) and DraftKings (DKNG 3.65%) that will get investors back and fuel further stock price growth. Let's find out a bit more about these two growth stocks and why 2022 offers a buying opportunity.
1. DigitalOcean
DigitalOcean has prospered in the cloud computing sector by targeting a specific niche. Instead of focusing on larger cloud customers the way Amazon Web Services does, DigitalOcean specializes in cloud services for small and medium-sized businesses. The company with a trailing 12-month revenue of $462 million currently values its addressable market at $72 billion, and believes it can grow revenue at a compound annual growth rate of 27% through 2025.
Its most compelling strength in attracting and keeping clients probably lies in the DigitalOcean community. Through that community, users can turn to people and resources when they face software-related challenges. This can include other DigitalOcean customers or its resource library, which recently expanded when the company bought CSS Tricks earlier this year. Such an approach helped it attract 623,000 customers worldwide as of the end of Q1, a 6% year-over-year increase.
On the plus side for the company, Q1 revenue was $127 million, a 36% surge from the same quarter in 2021. That accounted for 117% of net dollar retention, meaning longer-term customers spent 17% more with the company than in the year before. A headwind for the company is falling income from outside sources and an 84% increase in operating expenses that led to a quarterly loss of $18 million, up from a $3 million loss in the year-ago quarter.
DigitalOcean stock has also sold off with its sector. Consequently, the cloud stock trades at a 66% discount to its 52-week high. But that has taken its price-to-sales (P/S) ratio to 10.2, down from 30 in November. Given the tremendous opportunity in the small business cloud, long-term investors could see considerable returns, even with a modest investment.
2. DraftKings
Online gambling platform DraftKings has prospered due to the expansion of legalized online gambling in the U.S. Once a sports fantasy site, it evolved into a full-fledged online gambling platform encompassing daily fantasy sports, sportsbook, and casino gaming. It has also introduced an NFT marketplace.
Additionally, the recent acquisition of Golden Nugget Online Gaming boosted the company's iGaming segment and will promote it through its LiveDealer feature. This enhances the online casino experience by bringing in a human dealer, going so far as to integrate live shuffling.
As conditions stand now, state laws allow sports betting in 17 states and iGaming in five. Also, it expects to go live in Ontario soon, the province that represents around 40% of Canada's population.
Due partly to expansions, Q1 revenue came in at $417 million, 34% higher than year-ago levels. However, as the company has grown, expenses have risen faster than revenue. This brought the net loss to $468 million, up 35% year over year. But with its robust revenue growth, the company raised revenue targets for 2022 to between $1.925 billion and $2.025 billion, an increase of 53% at the midpoint.
The stock is also available at a massive discount, as it has fallen by nearly 80% from its September high. As a result, its P/S ratio is 3.7, near record lows.
Finally, three more jurisdictions are considering bills to allow mobile sports betting. This could mean that DraftKings can serve 43% of the U.S. population. Such expansions and the falling sales multiple could make this a great time to add DraftKings shares to your long-term portfolio.
