Believe it or not, the bulls are starting to run down Wall Street.
While not everyone has declared a new bull market, stocks have surged this year; the S&P 500 is up 17.6%, and the Nasdaq has posted even stronger gains.
But some stocks are still down substantially from their peaks in 2021 and offer excellent bargains, especially if you believe the turnaround will continue. Below are two that look like great buys right now.
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This metaverse leader has big upside potential
Keith Noonan: Buoyed by record levels of engagement stemming from pandemic-related social-distancing conditions, Roblox (RBLX 1.35%) stock reached a price above $134.50 per share in November 2021. But as the world moved closer to a state of normalcy, the metaverse leader's user base and monetization levels took a downturn. The company's stock price tumbled as well, and it's still down roughly 68% from its high, despite enjoying some rebound momentum this year.
While Roblox continues to trade at a large discount compared to its previous peak, the company's daily active user (DAU) numbers have bounced back to record levels. Average DAUs climbed 22% year over year to reach 66.1 million in the first quarter, and average bookings per user rose to $11.70 from $11.67 in the prior-year quarter. Thanks to performance along these lines, revenue rose 22% year over year to hit a record $655.3 million, and bookings climbed 23% to hit a best-ever $773.8 million.
While the company has been able to generate strong growth in revenue and bookings by selling in-game currency and premium subscriptions, it also remains in the early stages of building out its advertising business. With a sizable and highly engaged audience already using the platform, there's plenty of opportunity here.
Total engagement hours on Roblox rose 23% year over year to reach 14.5 billion in the first quarter; there's a good chance that DAUs and total engagement hours will continue to climb and help bolster the advertising business. Major brands including Nike, Gucci, and Samsung are already using the platform to promote their wares, and the metaverse specialist remains in the early stages of tapping into monetization channels in the advertising space.
Roblox's core business model is once again posting strong growth, and it's still just starting to pull moneymaking levers in the digital-ads market. With the company's stock down more than two-thirds from its high, shares look like a smart play for long-term investors right now.
A home-furnishings stock ready for a rebound
Jeremy Bowman: Home-furnishings retailers were big winners during much of the pandemic. But over the last year or so, the industry has generally struggled as home prices have fallen and consumer spending has shifted to services like travel, entertainment, and restaurants.
However, home prices and new home sales are now starting to rebound. That's good news for the industry, and particularly for higher-end retailers like Williams-Sonoma (WSM 0.17%).
In addition to its namesake brand, the company owns Pottery Barn and West Elm, giving it exposure to a broad range of styles, price points, and products in the industry. Over the years, that's been a winning formula for the company.
Williams-Sonoma has also evolved with the times, pivoting to e-commerce and rationalizing its store base. It now brings in roughly two-thirds of its sales through online channels, giving it exposure to e-commerce growth; this should benefit it once online retail reaccelerates after the current lull. Comparable brand revenue fell 6% in the first quarter, but this seems likely to be a temporary setback, as management is sticking by its long-term goal of mid- to high-single-digit annual revenue growth and an operating margin above 15%.
Still, the best reason to invest in Williams-Sonoma today is that the stock is an utter bargain, trading at a price-to-earnings (P/E) ratio of 8.6. It currently offers a 2.8% dividend yield, and the company has a long track record of buying back stock.
Williams-Sonoma is also highly profitable, and when the business starts to return to growth, investors should be rewarded accordingly. The stock is still down 43% from its high in 2021, meaning the upside potential in a rebound is substantial, especially given its valuation.
If the housing market continues to recover, Williams-Sonoma stock could soar.
