The last few years have been a challenging time for many growth stocks that have seen their valuations plummet amid economic concerns and rising interest rates. But bold investors with a long-term time horizon care less about what is happening in the short term -- focusing instead on what a company or industry could grow to become in the future.
Tesla (TSLA 1.85%), PTC (PTC 1.06%), and Velo3D (VLD -0.61%) are three vastly different growth stocks that could be worth a look now.
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Tesla has multi-decade potential
Daniel Foelber (Tesla): One of Ark Invest's top holdings, Tesla, has already gone parabolic in 2023. The electric vehicle (EV) stock has doubled from its 52-week low and is up a staggering 67.1% year to date.
When a stock has a rapid rally, it's easy to feel pressured to sell and lock in the gains. But in the case of Tesla, it's important to zoom out and notice that the stock is still down substantially from where it was a year ago, given it lost 65% of its value in 2022.
Tesla has always been a highly volatile stock that can do just about anything in the short term. But over the long term, there's no denying that the company has proved itself to be the undisputed global EV leader when it comes to balancing production volumes and profitability. Tesla's financial metrics have it all: high margins, sustained top- and bottom-line growth, a net cash position on the balance sheet, and high free cash flow.
TSLA Revenue (Annual) data by YCharts
There was a time when Tesla was a far more speculative bet. But the company has bridged the gap between its reality and its vision. The question today isn't whether Tesla is a good company or not, but rather, what is a reasonable price for Tesla stock?
Looking at its price-to-sales ratio and forward price-to-earnings ratio, Tesla is definitely cheaper than it used to be. But the recent run-up in the stock price makes it not as screaming of a buy.
If 2022 taught us anything, it's that valuation and position sizing matter. Instead of trying to time the market, a better approach to Tesla is to take a step back and determine what role you want Tesla to play in your portfolio (if any) and what you think a reasonable valuation for the stock is. From there, there are several strategies for building a position, such as buying in thirds, opening a starter position, or simply waiting for the valuation to reach a level that you think has a good risk/reward balance.
It wouldn't be surprising if, sometime in 2023, Tesla stock doubled from here or got cut in half. But it also wouldn't be surprising if, 10 years down the road, Tesla was selling 20 million cars a year and was the most valuable company in the world. And for that reason, owning a bit of Tesla even after the stock's 2023 surge makes a lot of sense.
Industrial software company PTC offers earnings resiliency
Lee Samaha (PTC): The software company PTC sees some signs of a slowdown in the form of softer bookings, but that shouldn't detract from the resiliency of its business in 2023, its long-term growth potential, or even its potential to ramp free cash flow (FCF) generation in the coming years.
For those new to PTC, the company provides computer-aided design and product lifecycle management (PLM) software, which helps customers digitally design and manage physical products. In addition, its service lifecycle management integrates with PLM in assisting users with better service products. Meanwhile, the Internet of Things connects the physical and digital worlds and augmented reality uses the digital world to facilitate better functioning in the physical world. As such, PTC is a play on the increasing use of digital technology in the industrial world.
It's a solid secular trend likely to pick up in growth from any recession. As for the earnings resiliency, PTC has $1.6 billion in annual run rate (ARR), which it defines as "the annualized value of our portfolio of active subscription software, cloud, SaaS, and support contracts as of the end of the reporting period." With its ARR growing at a mid-teens rate in the first quarter of its financial 2023, management is forecasting 22%-25% growth in ARR (including 11% from an acquisition) for the full year.
In addition, more of the company's earnings are set to drop into FCF, with management forecasting $575 million in FCF for 2023 compared to adjusted FCF of $468 million in 2022.
It all adds up to a business with plenty of long-term growth potential to ride out any recession and emerge stronger.
Velo3D could print profits for investors
Scott Levine (Velo3D): It's no secret that Cathie Wood is bullish on 3D printing stocks. In fact, Ark Invest has a passively managed fund solely dedicated to them, The 3D Printing ETF. One 3D printing stock that she seems particularly enthusiastic about, though, is Velo3D. Beginning in late January, the Ark Autonomous Technology & Robotics ETF began a buying spree that ended two weeks later.
Specializing in metal 3D printing, Velo3D meets the demands of customers who require 3D printing services for complex parts such as microturbines, turbopumps, and high pressure tanks. But the company recently made inroads into other industries.
In the third quarter of 2022, Velo3D partnered with customers in new markets: two European aerospace original equipment manufacturers (OEMs) and a major U.S. automotive OEM. This bodes well for the company's progress as it illustrates that a diverse assortment of customers recognizes the value of its 3D printing prowess. Another indication of the company's bright future is the growth it identified in its backlog. While Velo3D had a backlog of $55 million at the end of Q2 2022, its backlog at the end of Q3 2022 stood at $66 million.
Shares of Velo3D are currently down more than 55% from where they were at this time last year, but that doesn't mean this 3D printing stock is down for good. Should the company continue to recognize gains in its backlog as it did in Q3 2022, grow revenue, and make progress toward profitability -- three things that seem within its capabilities -- investors may start to take notice and drive shares skyward.
