The recent bear market caused some investors to flee growth stocks and seek safety in value or dividend stocks. Diversification is smart, but there's still great companies within the growth stock space to invest in. With stock prices still depressed, many of these companies are available to investors at discounted prices.
For investors with money to put to work in the market, there are many growth stocks to choose from. The following three companies are poised for success right now, and $1,400 would be all that's needed for one share of each. Those with access to fractional shares could own each of these great businesses with even less capital to deploy.
The Trade Desk
The Trade Desk (TTD 3.35%) is at the forefront of how the advertising marketplace is evolving as content consumption migrates to streaming services and connected television. As more consumers cut the cord and stream their TV, and more streaming services offer ad-supported subscription tiers, The Trade Desk will facilitate more ad placements that are targeted to the viewer and full of data for the advertisers.
Advertising spending can be impacted by macroeconomic conditions, but so far The Trade Desk has been faring well in challenging times. The company's first-quarter 2023 revenue was $383 million, a 21% increase year over year. By comparison, Meta Platforms grew its advertising by only 4% while Alphabet's fell by 0.2%. This would suggest that The Trade Desk's role in the advertising marketplace will be difficult to disrupt.
Compared to some other growth companies that are fast growers but struggle with seeing revenue fall to the bottom line, The Trade Desk has also been free-cash-flow positive and net income profitable for almost its entire existence as a public company. This is key when considering its valuation compared to other cash-burning and unprofitable growth stocks.
Outset Medical
Medical device stocks can be risky investments, especially if the company is still awaiting approval for its devices. Fortunately for Outset Medical (OM 3.66%), it already received Food and Drug Administration approval for its Tablo dialysis system, which allows kidney dialysis to be managed in acute care or home settings.
Outset is still in the early days of penetration into a massive market opportunity. The company estimates that the total addressable market in the U.S. alone is $11 billion, with $9 billion of that being in the home dialysis market. Management's estimates should always be taken with a grain of salt, but there's no denying there's a long runway for growth ahead of the company.
Revenue increased by 10% in Q1 of 2023 compared to the year-ago quarter, and if the company can reach its estimated revenue guidance for the rest of this fiscal year, it would represent a four-year compound annual growth rate of 77%.
Outset is also seeing its operational efficiencies improve as it scales. When the company started trading as a public company it had a negative gross margin, meaning it cost more to produce its product than the business made selling it. Fast-forward to Q1 of 2023 and Outset's gross margin is 19.2%. Management is targeting a 50% gross margin in the long run.
The company still has work to do with profitability and cash burn. Net loss in Q1 was $44 million and the business had negative operating cash flow. That said, an ever-improving gross margin should eventually start to help the bottom line.
MercadoLibre
MercadoLibre (MELI -1.79%) is unique in its position as the leading e-commerce and fintech company in Latin America. The company's e-commerce platform generated $1.7 billion in revenue in Q1 of 2023, good for 31% growth year over year while its MercadoPago fintech business grew its revenue 40%.
Breaking these two segments down further, it's difficult to find any weaknesses. The e-commerce business increased its number of items sold by almost 16% year over year, led by Mexico at 29%. MercadoLibre also operates an advertising business that has revenue growing faster than gross merchandise volume (the total amount of merchandise sold across the platform).
On the fintech side of the business, total payment volume (the total amount of money translated on the platform) increased by 46% year over year. Excluding the impact of foreign currency exchange, total payment volume increased by 96%. While we can't ignore currency exchange, removing it from the equation does show the actual growth of the fintech platform.
This strong growth across all business segments comes even as the valuation for MercadoLibre remains reasonable. MercadoLibre trades for 5.8 times trailing sales and 18 times free cash flow. These multiples are not far off from the company's 10-year lows of 3.6 times sales and 16.9 times free cash flow, presenting what I believe is a great buying opportunity for a great company.
