Growth stocks are all the rage this year, so it's little surprise that Cathie Wood's ARK Innovation exchange-traded fund has been doing well -- it's up 29%. Three of the hottest stocks within that fund are Tesla (TSLA 1.85%), DraftKings (DKNG 1.63%), and Exact Sciences (EXAS 1.80%). Here's what's been driving their impressive results this year -- and whether they still look like good buys now.
1. Tesla
Shares of electric vehicle (EV) maker Tesla are up over 50% this year. A lot of that may simply be the stock making up for some of the 65% dive it experienced in 2022. And even after its 2023 climb, it's still down by more than 46% from where it began last year.
After all, the company hasn't been making great news of late. It has repeatedly trimmed the prices of its vehicles, which has been leading to worsening margins. That's a bit of a concern for investors.
TSLA Gross Profit Margin data by YCharts.
Tesla still dominates the EV market -- it accounted for 65% of EV sales in the U.S. last year. But some big rivals could chip away at that position. Incumbent automakers, including Ford and General Motors, are ramping up production of their own EVs. And trading at 42 times estimated forward earnings, Tesla's stock still isn't terribly cheap.
It may prove difficult for Tesla shares to maintain their 2023 gains if the company's financials don't improve. Its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin was 18.3% in the first quarter (for the first three months of the year), down from 26.8% a year earlier.
For long-term investors, this can be a good investment to buy and hold with the EV market still in its early growth stages. But the safer option at this point would be to wait and see how the company performs in future quarters and what the full effect of its recent pricing changes is on the business before considering adding the stock to your portfolio.
2. DraftKings
DraftKings has been even hotter than Tesla in 2023 -- the online gambling stock has soared 125% year to date. It, too, struggled last year, falling 59% as the bear market broadly punished growth stocks. But now, with investors showing more of an appetite for growth investments, DraftKings has been leading the charge. It's only down by about 11% from where it began 2022.
One of the reasons investors are bullish on the company is that it's a big name in a growing industry: sports betting. It has only been five years since the Supreme Court overturned the law that had banned sports betting in most of the U.S., and DraftKings' growth has been explosive. During the first quarter of 2023, the company reported $770 million in revenue, which is more than it reported during all of 2020, when revenue topped $615 million. And 2020 was a strong year in which revenue nearly doubled.
The company is still in the midst of launching sportsbooks in new markets, including recent launches in Ohio and Massachusetts. As of the end of March, it had 2.8 million average monthly unique payers (MUP) -- up from 2 million a year earlier. DraftKings is also generating more revenue per MUP, at $92 this past quarter versus $67 a year ago.
DraftKings is a risky but growing business. Its most recent quarterly operating loss of $390 million was significant, although it was an improvement from the $516 million loss the company incurred in the prior-year period. Management does, however, project that it will achieve breakeven on an adjusted EBITDA basis as early as next quarter.
Although it's trading near its 52-week high, this stock has the potential to go higher given the growth opportunities in the gambling industry. However, it may not be suitable for risk-averse investors given its ongoing losses.
3. Exact Sciences
Up around 70% year to date, Exact Sciences has been another hot growth stock to own in 2023 after declining 36% in 2022. The company behind the Cologuard test, which can detect colorectal cancer at early stages, has experienced strong growth over the years -- and the stock is now up almost 7% from where it began 2022.
EXAS Revenue (Quarterly) data by YCharts.
The company isn't profitable, but it is moving in the right direction. During Q1, Exact Sciences reported a net loss of $74 million, which is less than half of the $181 million loss it incurred in the same period last year. The company's strong gross margins of around 74% mean that much of the additional growth that Exact Sciences generates should help cover operating expenses and overhead, leading to a better bottom line.
With the company still anticipating more growth, it looks to be en route to eventually becoming profitable. This year, management is guiding for sales of around $2.4 billion, which would be a 15% increase from the less than $2.1 billion it reported in 2022.
The healthcare stock is trading around its 52-week high, but it could continue to climb as its top and bottom lines improve.
