The stock market has been brutal this year, especially if you're interested in fast-and-furious growth stocks. With just a handful of exceptions, nearly every high-performance growth stock has taken a haircut in 2022.
This rule of thumb applies even to top-shelf companies with tremendous business performance during this period. Investors just walked away from the growth-oriented side of Wall Street, searching for calmer and safer investment options.
The wide-ranging growth-stock collapse has created many fantastic investment opportunities. When there's a mismatch between perceived risks and proven business performance, patient investors can often find wealth-building buying windows.
For example, I see incredible value in Roku (ROKU 0.73%) and Block (SQ -1.59%) right now. Read on to see why you should consider picking up these top-quality growth stocks while their shares are on fire sale. And I think you'll see a common theme among these two innovators.
Roku: The future of entertainment is digital
Media-streaming technology veteran Roku is evolving before our eyes. The company has moved beyond video-streaming set-top boxes and HDMI dongles to generate most of its revenues from software licenses. Furthermore, Roku is pulling in additional sales through advertising channels, which, in turn, are supported by the company's move into original content production.
For example, the comedy biopic Weird: The Al Yankovic Story will hit the Roku Channel on Nov. 4 and has received rave reviews from early critics. One movie won't make or break a streaming service, but Weird sure looks like a valuable asset.
So far, Roku has focused almost exclusively on the North American market. It's the leading provider of media-streaming software platforms for connected TVs here, with a dominant 50% market share. Less than 10% of the company's revenue come from abroad.
That's changing, though. Roku recently launched the Roku TV platform in Germany and three new TV-set partners for the Mexican market. In short, Roku is diversifying its business portfolio in terms of product offerings, as well as global-market reach.
Market makers aren't applauding Roku's achievements and long-term plans this year, though. Instead, they have focused on slower growth in the video-advertising segment, and Roku's stock is trading more than 80% below last-October's 52-week high. Shares are changing hands for just 2.8 times trailing sales, down from nearly 30 in the summer of 2021.
This company is building a digital-media empire for the ages, but the stock was thrown into Wall Street's bargain bin due to short-term concerns about a single piece of Roku's diverse revenue puzzle. I think that's a big mistake, setting investors up for incredible long-term gains from this modest price level.
Block: The future of finance is digital
Digital-payments enabler Block is also down by roughly 80% from last October. The revenue chart suggests that Block is in a deep funk nowadays, as its top-line growth stalled and turned negative over the last five quarters:
SQ Revenue (TTM) data by YCharts.
However, this negative growth trend springs entirely from the swooning cryptocurrency market. As reported, Block's second-quarter revenue fell 6% year over year, but if you back out the contribution from weak Bitcoin (BTC 0.73%) prices, the core business grew by 34%. So Block's brutal price cut stems from the double whammy of growth-stock rejection (like Roku) and cryptocurrency concerns (which don't apply to Roku, at all).
Meanwhile, the Cash App payment system posted 29% higher gross profits in the second quarter, and the recently acquired Afterpay payment-plan service contributed $150 million to Block's gross profits. In other words, Block's main line of business is quite healthy.
Bitcoin really is struggling to prove its long-term investment value right now, but I think that this crypto winter will pass. When it does, Block CEO Jack Dorsey will look like a genius for going all-in on his Bitcoin investments. Buying Block shares today is a rather direct play on the long-term future of cryptocurrencies, but with the added safety of investing in a growing and profitable business.
