This young year hasn't been perfect, but it's been generally kind to growth stocks. Investor sentiment turned against high-octane stocks in 2021 and 2022, but many of the former market darlings started to bounce back in January.
They're not all participating in the recovery effort. Some of the worst-performing stocks of 2023 -- down at least 20% year to date -- happen to be growth stocks. Sirius XM Holdings (SIRI -4.43%), Canoo (GOEV -6.90%), and JD.com (JD 1.13%) have had a rough start to 2023. They're down 24%, 39%, and 21%, respectively so far this year.
Is this a dinner bell for contrarians? Let's see if now is a good time to buy these three out-of-favor growth stocks.
Sirius XM Holdings
There's only one name in the country when it comes to satellite radio, and that is Sirius XM Holdings. It's been 15 years since Sirius completed its merger of equals with XM, but it's hard to call this a monopoly. Satellite radio competes with both terrestrial radio and the bigger threat of streaming services that can seamlessly play through the stereo systems of connected cars.
Despite its advantages as a premium platform and the challenges of competing against the mounting popularity of streaming services and the 2020 pandemic fallout, growth has been slow and steady at Sirius XM. Back out the one year that revenue spiked following the acquisition of online music pioneer Pandora, and Sirius XM has posted modest single-digit revenue for seven consecutive years.
Image source: Getty Images.
The streak could be ending. Revenue growth was flat in its latest quarter. A 2% increase in subscription revenue was offset by small declines in ad revenue and with Pandora. Guidance for 2023 is uninspiring. Sirius XM sees $9 billion in revenue for all of 2023, flat with last year's showing. It also sees declines in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) and free cash flow.
Is it time to buy Sirius XM Holdings? It's a very profitable business, and it has used its healthy free cash flows to repurchase 40% of its outstanding shares over the past 10 years. Its appetite should diminish for its own cooking with cash flows contracting. There is also the fear that subscriber growth may have plateaued. It's been pretty flat over the last four years. You might want to wait for an uptick on that front before turning up the volume on Sirius XM.
Canoo
The biggest loser on this list -- and of just 20 stocks with market caps above $340 million to surrender at least 30% of their value in 2023 -- is Canoo. The company's prototype electric-powered van has uses for consumers, commercial delivery fleets, and military operations. It has inked deals with everyone from the Department of Defense to Walmart. The real question now is if it can fulfill the billions of dollars worth of orders that it has been receiving lately.
It is time to buy Canoo? It's too risky. As cheap as Canoo stock has gotten, it still diluted shareholders last month by selling stock to institutional investors at a discount.
JD.com
Chinese growth stocks have bounced back in 2023, but one of the biggest names has been kept in check. JD.com is a juggernaut in e-commerce with 588.3 million active annual customer accounts. Sales decelerated in 2022, and it has also struggled with its expansion efforts. Overseas reports have JD.com bowing out of Thailand and Indonesia later this month. It's also boosting promotional activity to keep pace with rival platforms.
It it time to buy JD.com? It's a reasonable consideration at current prices. Even notable short-seller Michael Burry recently bought shares of JD.com. It does report fourth-quarter results next week, but that could be a good thing given its depressed shares. JD.com has trounced Wall Street profit targets in each of the past four quarters. With JD.com trading for just 15 times this year's projected earnings -- and roughly growing its top line at that pace and its bottom line even faster -- it's a compelling investment if you're comfortable with the inherent risks of buying Chinese growth stocks.
