Cathie Wood became a growth-investing legend in 2020, but that was two long years ago. The co-founder, CEO, and chief stock picker for the Ark Invest family of exchange-traded funds (ETFs) has been struggling since her breed of disruptive growth stocks corrected sharply starting last year, but she's not altering her approach.
Wood is still adding to some of her top growth stocks, even as they continue to sell off. She's been adding to her existing stakes in Block (SQ 1.56%) and DraftKings (DKNG 1.38%). If you're a patient investor, these are two promising growth stocks that could pay off over time.
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Block
Don't let the new name fool you. Block is still all about Square and Cash App. The next time you're swiping or tapping plastic to settle up with your dog sitter or the barista at your favorite indie coffeehouse, pay attention. There's a good chance you're a part of the growing Block ecosystem.
Between Square's widening breadth of merchant solutions and Cash App's bubbling popularity as a peer-to-peer payments platform, Block is at the right place. It's just the wrong time.
Fintech stocks have been getting hammered, and Block hasn't been able to escape the malaise. It's still a stronger company than its stock chart -- or even its recent top-line results -- may suggest.
Block's revenue of $4.4 billion in the second quarter was a 6% year-over-year decline, but that includes Bitcoin, which experienced a feeding frenzy in the springtime of last year. Since Block records Bitcoin transactions as revenue, it's a deceptively outsized segment of its business -- but it's not the right way to size up its success. Revenue rose 34% if you back out the crypto.
Gross profit -- a metric that Block prefers to lead with since it's a better health check of its Square and Cash App businesses -- rose 29% in its latest quarter. The runway is long. A healthy 47 million accounts transacted on Cash App in June, but it's just getting started.
Profitability will be spotty as Block invests in growth, but it's trading at a near historical low revenue multiple of just 2.5. It's true that fintech stocks have fallen out of favor, but today's leaders are the digital banks of the future. Don't bet against fintech, and don't bet against Block.
NYSE: SQ
Key Data Points
DraftKings
Wood is betting big on DraftKings. She's increased her stake in the online gambling and fantasy-sports specialist in each of the past four trading days.
It's easy to see why she thinks that DraftKings is a winner. Revenue soared 57% in its latest quarter, and DraftKings boosted its full-year guidance.
We're seeing states starting to warm up to the prospects of generating incremental revenue by legalizing gambling. DraftKings has played this game well. Its original fantasy-sports platform is a foot in the door, and one that has helped it ink partnerships with leagues, teams, and media giants. Now it's just a matter of clearing the regulatory hoops to get its more lucrative online sportsbook into the game.
DraftKings is still years away from profitability, but it's easy to look past that when you see its healthy top-line growth. DraftKings is playing a game that it knows well. If you shouldn't bet against Block, you probably shouldn't bet against DraftKings -- and Wood, for that matter -- either.
