Spurred by market-moving trends, including the rise of artificial intelligence (AI), 2023 has been a great year for growth stocks. Explosive gains for companies including Nvidia, Microsoft, and Apple helped to push the S&P 500 index up roughly 24% across this year's trading. Meanwhile, the even more growth-oriented Nasdaq Composite index has surged 43% across the stretch.
Of course, the explosive gains for growth stocks this year also have to be viewed in the context of big sell-offs that took place in 2022. And while some large tech companies have come roaring back to reach new valuation highs this year, the market-shaping recovery has been unevenly distributed. Some fantastic companies with explosive potential still trade at big discounts compared to previous highs, and investors still have plenty of opportunities to capitalize.
If you're looking for top growth stocks still trading at levels that leave room for explosive returns, read on to see why two Motley Fool contributors believe you should buy these stocks before 2023 falls off the calendar.
This beaten-down growth stock could soar
Keith Noonan: Roblox (RBLX 1.35%) is a leading online social entertainment platform. While the company's service is often thought of as a video game platform, it actually hosts an incredible breadth of games and social experiences. In modern terms, Roblox is better described as a metaverse -- and it's one of the most successful takes on creating a thriving online virtual world so far.
But while Roblox's long-term growth trajectory and recent business performance have been quite impressive, the company's stock performance is best described as volatile. When the company went public in March 2021, it was still seeing elevated engagement levels related to social-distancing policies stemming from the coronavirus pandemic. The Federal Reserve had also yet to kick off its accelerated program of interest rate hikes to combat inflation, and the market's appetite for growth stocks was still relatively high.
Business and market conditions changed quickly in 2022, and Roblox got crushed. The company went through a period in which engagement and sales growth were hampered by the easing of pandemic-related conditions, and investors quickly fell out of love with the stock.
But even though the business has returned to setting new engagement records and posting strong sales and bookings growth, the market remained lukewarm on Roblox. With the company's share price still down 67% from its high, I think that investors can score wins by capitalizing on the disparity between the metaverse leader's stock moves and its recent business performance and long-term growth potential.
With revenue surging 38% year over year to reach $713.2 million in the third quarter, concerns about Roblox being a flash in the pan can be safely set aside. Even better, the company is still in the early stages of rolling out its digital advertising and generative artificial intelligence (AI) initiatives.
Roblox still has massive growth opportunities ahead, and investors could score wins by building a position in the stock while it's still down big from its previous peak.
Fearing artificial intelligence, Fiverr is selling cheaply.
Parkev Tatevosian: Fiverr International's (FVRR 3.74%) stock price is down a whopping 91% off its high water mark reached in 2021. While the company faces some challenges, notably the impact of AI on its business, I think the sell-off is overdone. Meanwhile, Fiverr continues to demonstrate excellent revenue growth and it's making progress on profitability.
Indeed, from 2017 to 2022, Fiverr's revenue expanded from $52 million to $337 million. The company operates a platform that brings together buyers and sellers of services. For instance, someone who wants to hire an individual to make YouTube thumbnails can find plenty of choices on the Fiverr platform.
For its services, Fiverr takes a fee from each transaction occurring on its platform. That has proven to be a scalable business model, as Fiverr's operating income has improved from negative $8 million to negative $2 million from the June-ended quarter in 2021 to the September-ended quarter in 2023.
The business model is built to scale efficiently, as Fiverr does not need major capital investments to grow the business. The primary factor for growth will continue to be Fiverr to build its ecosystem, attracting more buyers and sellers to sign up.
FVRR P/E Ratio (Forward 1y) data by YCharts.
Fiverr stock trades at a forward price-to-earnings ratio of 12, a relatively cheap valuation for a company with its growth characteristics. Of course, there is reason for the discount.
AI threatens to replace some of the services offered on the Fiverr platform. Rather than hiring someone on Fiverr to complete a service, businesses can use AI to complete the task. That might be true to some level, but I think there is an overreaction to the risk, and Fiverr stock could be an excellent growth stock to buy for long-term investors.
