The stock market has witnessed a remarkable change in fortunes in 2023 following the beating it took last year amid surging inflation and interest rate hikes. Growth stocks have been big drivers of the recovery, surging as inflation has cooled and the Fed has slowed the pace of interest rate hikes. However, there are a few growth stocks that have dipped significantly of late for various reasons.
Fortinet (FTNT 0.23%) and Super Micro Computer (SMCI 8.89%) are two such fast-growing companies that investors can lap up at cheaper multiples now. If you have $1,000 in investible cash after paying off your bills and high-interest loans and saving enough for an emergency fund, it may be a good idea to invest that money in these two stocks -- either separately or combined. Let's look at the reasons why.
1. Fortinet
A $1,000 investment made in Fortinet stock five years ago is worth about $3,300 at recent prices. Fortinet has been able to deliver such terrific gains thanks to the consistent growth in its top and bottom lines over the past five years, driven by the growing demand for the company's cybersecurity offerings.
Fortinet's stock has jumped 19% in 2023. However, shares of the cybersecurity specialist have dropped sharply since it released its second-quarter results on Aug. 3. Investors pressed the panic button after the company lowered its full-year revenue and billings guidance.
Fortinet now expects to clock a 22% jump in revenue in 2023 to $5.4 billion at the midpoint of its guidance range, which is slightly below the $5.45 billion top line it was forecasting earlier. Fortinet trimmed its forecast because of macroeconomic challenges that led customers to push deals to future quarters.
Despite those challenges, Fortinet's guidance suggests that it is on track to deliver solid growth in 2023. Additionally, the company's earnings guidance of $1.51 per share would translate into a 27% jump over the prior-year period. Fortinet is expected to sustain this healthy earnings growth level over the next couple of years as well.
FTNT EPS Estimates for Current Fiscal Year data by YCharts.
As the chart above indicates, Fortinet's earnings are expected to grow at a faster pace in 2025. That's not surprising, given the fast-growing cybersecurity niches and the huge end-market opportunity that the company can take advantage of.
Fortinet estimates that it is sitting on a $122 billion total addressable market (TAM), which would mean it is only scratching the surface of a massive opportunity. More important, Fortinet's customer base is expanding despite the macro uncertainty that has led it to reduce guidance. The company added a record 6,500 new customer accounts in the small and mid-sized segments last quarter. Additionally, it saw a 13% jump in the number of deals worth $500,000 or more last quarter.
These metrics indicate that Fortinet is pulling the right strings to make the most of its huge end-market opportunity. As a result, it won't be surprising to see the company achieve the impressive earnings growth that analysts are expecting from it over the next couple of years.
Assuming Fortinet does clock $2.16 per share in earnings in 2025, its stock price could hit $95 simply based on its trailing earnings multiple of 44. That points toward a 63% jump from recent levels, indicating that a $1,000 investment in the stock now could be worth more than $1,600 in just over a couple of years.
It is worth noting that Fortinet's price-to-earnings (P/E) ratio is lower than its five-year average earnings multiple of 69. Also, the company's P/E ratio has pulled back significantly of late while its earnings growth has remained impressive.
FTNT PE Ratio data by YCharts.
All this indicates that buying this cybersecurity stock right now looks like a no-brainer, given the potential upside that it could offer on the back of a surge in its bottom line.
2. Super Micro Computer
Just like Fortinet, shares of Super Micro Computer have pulled back sharply since the company released its latest quarterly results on Aug. 8. Though the company reported outstanding top- and bottom-line growth and crushed Wall Street's expectations, lukewarm near-term guidance led to a big drop in the stock price.
Investors would do well to focus on the bigger picture, as Super Micro is delivering outstanding growth thanks to artificial intelligence (AI).
The demand for Super Micro's server racks has erupted thanks to the booming demand for AI servers. The company finished fiscal 2023 (which ended June 30) with a "record high backlog," which explains why it sees faster revenue growth in the current fiscal year. What's more, Super Micro expects AI-driven demand to help it achieve $20 billion in annual revenue in the next couple of years.
The company expects to finish fiscal 2024 with $10 billion in revenue at the midpoint of its guidance range, which would translate into a 41% increase over the prior year. For comparison, Super Micro's fiscal 2023 revenue increased 36% to $7.1 billion, suggesting that the company is anticipating faster growth this year.
Super Micro stock has lost 28% of its value since its results were released, but it is still up 203% this year. So, investors now have a chance to buy a fast-growing AI stock at an attractive valuation. Super Micro is now trading at just 2 times sales, a discount to the S&P 500's sales multiple of 2.4. Its forward earnings multiple of just 7 also represents a nice discount to the S&P 500's forward P/E ratio of 20.
Given that a $1,000 investment in Super Micro five years ago is now worth $12,500, investors may not want to miss the opportunity to buy this stock at its current valuation.
All this explains why Super Micro has a median 12-month price target of $375 as per a consensus of nine analysts covering the stock. That points toward a 50% jump from current levels, indicating that this AI stock could give investors a nice return if they consider putting $1,000 into it. More importantly, buying Super Micro stock right now looks like a winner, considering its cheap valuation and the outstanding growth it is delivering.
