The stock market is one of the greatest wealth-building tools available to retirement savers. A simple recipe for earning great returns is persistently adding money to growing companies and rarely selling. If you buy great companies at discounted valuations, you'll make even better returns.
Here are two discounted growth stocks that are well positioned to deliver market-beating returns for many years.
1. Coupang
Coupang (CPNG 0.74%) is one of the largest e-commerce marketplaces in the South Korean market. The stock is currently 75% below its IPO price from 2021, but the share price has rebounded 31% from its lows a year ago and could be setting up for a bull run.
Revenue increased 26% on a currency-neutral basis in 2022. It is clearly gaining market share in South Korea, where e-commerce is estimated to be worth $466 billion and growing 4% per year. With just $20 billion in annual revenue, Coupang has a vast opportunity ahead.
And management still sees a lot of opportunity to increase revenue from existing customers by encouraging more purchase frequency. To accomplish this, the company is expanding its selection and building a larger infrastructure to handle more demand. Its Wow membership program, which offers same-day delivery like Amazon Prime, has nearly doubled to 11 million over the last two years.
Most importantly, Coupang is driving top-line growth while showing a strengthening bottom line. The key measure here is free cash flow, which improved to a positive $462 million in the fourth quarter.
The market is not fully appreciating the strong top-line growth, long-term growth potential, and improving free cash flow. On a price-to-sales (P/S) basis, the stock trades at 1.46 times trailing revenue, compared to Amazon's P/S multiple of 2.0. Something has got to give, because Coupang is growing nearly three times faster than its U.S. counterpart.
Indeed, Coupang looks undervalued and has the potential to significantly outperform the broader market over the long term.
2. Wix.com
Many investors may not be familiar with Israel-based Wix.com (WIX 1.13%), but it's a popular platform for creating websites. With a premium subscription, members have access to a variety of powerful tools to easily set up a website, receive payments for goods, and grow traffic. Its customers are primarily businesses and other professionals from just about every field, from finance to photography.
The most important thing that stands out about Wix is its monstrous growth over the last 10 years. The company grew from $80 million in revenue in 2013 to nearly $1.4 billion in 2022.
Wix has faced plenty of competition. Some competing platforms have long disappeared, but Wix is still standing. At the recent Nasdaq Investor Conference, Chief Financial Officer Menashe Lior Shemesh mentioned that Wix is mostly gaining share right now against Wordpress.
Wix dominates this market, and management believes the company can reach $10 billion in annual revenue over the long term. There are plenty of tailwinds that could get it there, including the burgeoning creator economy. But macroeconomic pressures caused revenue growth to slow to 9% year over year in 2022. The stock is currently 76% off its all-time high.
While top-line momentum has slowed, management is working to improve profitability. Margins are on the rise from cost reduction efforts. The company is guiding for free cash flow to land between 10% and 11% of revenue this year, or a range of $152 million to $162 million.
The stock currently trades at less than half its average P/S ratio of 8.1 over the last 10 years. At this lower valuation, Wix should be a rewarding investment.
