Few people like bear markets, but maybe that should change. Downturns provide exceptional opportunities to make money by buying great stocks while they are down. In the current market dip, growth stocks are leading the way, having lost the appeal they had during much of the 2010s.
But many of these companies will rebound once economic troubles subside and equity markets recover. Let's look at two stocks that could soar once that happens: Tandem Diabetes Care (TNDM +3.74%) and Roku (ROKU +3.71%).
1. Tandem Diabetes Care
Diabetes-focused medical device specialist Tandem Diabetes Care has had a terrible year, with shares plunging by 75%.
NASDAQ: TNDM
Key Data Points
What is going on with the company? On the one hand, it continues to make progress within its target market. Tandem Diabetes makes money through the sale of its t:slim X2. This innovative insulin pump is smaller than most competitors, user friendly, allows for remote software updates, and can be paired with a continuous glucose monitoring device to automate the insulin delivery process.
Tandem Diabetes Care's crown jewel has risen in popularity in recent years. That continues to be the case, leading to higher revenue for the company. In the third quarter, Tandem Diabetes Care's total sales jumped by about 14% year over year to $204.5 million. However, Tandem's revenue growth rates have decreased lately.
TNDM Revenue (Quarterly YoY Growth) data by YCharts
Further, it isn't consistently profitable. Tandem's third-quarter net loss per share of $0.76 was much worse than the earnings per share of $0.09 reported during the year-ago period.
With that said, there are excellent reasons to stay the course with this company. First, Tandem Diabetes Care is looking much more reasonably valued at current levels following its recent poor performance on the stock market.
TNDM PS Ratio (Forward) data by YCharts
Second, usage of its products continues to grow. Its installed base rose by 35% year over year in the third quarter to over 400,000 users. This creates a solid opportunity for repeat customers, assuming they are satisfied with the company's product. Tandem estimates that 25% of its clients are eligible for pump renewals every year based on reimbursement cycles, and it aims for a 70% retention rate.
Beyond its existing pool of customers, the company estimates that half of its customers switched from another pump. These are opportunities within the universe of customers who already use pumps, but most don't. The bulk of diabetes patients still relies on painful and multiple daily injections (MDIs) for insulin delivery. In the U.S., 64% of type 1 diabetes patients still use MDIs.
That number is much higher abroad, and the type 2 market is also underpenetrated. Roughly half of Tandem Diabetes Care's clients switched from MDIs. Diabetes is becoming more and more prevalent.
Tandem Diabetes' innovative device (and it is working on developing newer gadgets) should only gain in popularity. That will allow for higher revenue growth, and eventually, the company can become consistently profitable. It's far too soon to give up on this healthcare stock.
NASDAQ: ROKU
Key Data Points
2. Roku
Streaming giant Roku is struggling under the weight of economic headwinds. The company makes much of its money from its advertising business, and with businesses decreasing ad spending recently, Roku's sales are suffering. Its year-over-year growth rates have plummeted while it continues to record red ink on the bottom line.
Roku's revenue increased by almost 12% year over year in the third quarter to $761 million. By Roku's standards, that's unimpressive.
ROKU Revenue (Quarterly YoY Growth) data by YCharts
Roku had warned that it would continue to face headwinds for the rest of the year, and its grim outlook for the fourth quarter was one of the main reasons why its stock fell sharply on the heels of its quarterly update. On the bottom line, Roku turned net earnings per share of $0.48 recorded in the prior-year quarter to a net loss per share of $0.88 this time around, largely due to rising expenses.
On the positive side, Roku has gotten much cheaper, with a substantially more reasonable forward price-to-sales ratio.
ROKU PS Ratio (Forward) data by YCharts
Meanwhile, it is still increasing user engagement. In the third quarter, active accounts jumped by 16% year over year to 65.4 million, and streaming hours reached 21.9 billion, up 21% compared to the year-ago period. This means Roku should continue to be a prime avenue for targeted ads as long as it keeps growing its user base.
The advertising business won't stay down forever, so we can expect Roku's revenue growth to rebound once it does. And there is plenty more room to grow here. Roku's current active accounts are a mere fraction of the worldwide opportunities, particularly as it is making a push in international markets such as Mexico, where the industry's penetration tends to be lower.
Further, Roku is squeezing more money out of its existing customers by increasing its average revenue per user, which, for the third quarter, jumped by 10% YoY to $44.25.
The increased switch away from cable television and on to streaming should continue to provide a tailwind for Roku to thrive for years to come. As the company said, "Economic cycles do not change our significant, long-term opportunity in TV streaming."
