Technology stocks have surged over the last year, and that strong momentum could continue through 2024. But while some of 2023's biggest tech sector winners will likely continue to serve up impressive performance, investors may be able to score even bigger wins by backing high-quality stocks that are still down massively from their previous highs.
With the Federal Reserve broadly expected to begin cutting interest rates this year, some beaten-down growth stocks could be poised for market-crushing rebounds. If you're on the hunt for potentially explosive long-term investment opportunities, these two companies stand out as smart portfolio additions right now.
1. Paycom stock: Down 63% from its high
As a specialized provider of payroll and human resources software, Paycom (PAYC 1.24%) may not be the most exciting company in the tech sector. With its share price down 33% over the last year and 63% from its all-time peak, the stock hasn't exactly been exciting recently either.
But there's a good chance that this underappreciated software provider can recover from some recent challenges and deliver big wins for investors.
So why is Paycom stock struggling? In some ways, the company is a victim of its own success. Roughly two-thirds of the company's client base has now transitioned to its cloud-based Beti platform, which allows employees of business customers to complete their own payroll data. Thanks to the transition, businesses are seeing fewer payroll errors that need to be corrected by buying added services from Paycom. Unfortunately, this is resulting in slower sales growth for the company.
Management's guidance called for sales growth of approximately 14% in Q4, to between $420 million and $425 million. Meanwhile, the company expects to record annual sales growth of roughly 11% in 2024 -- well below the 30% growth it recorded in 2022 and the 22% growth management modeled for in 2023.
While the efficiency improvements offered by Beti are putting some growth pressures on Paycom, they should also put pressure on its competitors. The software specialist is prioritizing strengthening its customer network and enhancing its moat, which should open up new opportunities further down the line.
Adding new services to its ecosystem or tweaking billing structures with Beti will open up avenues for the company to accelerate its sales growth again. Additionally, Paycom continues to serve up strong profits and is still in the early stages of expanding into international markets.
The market is overly bearish on Paycom, and investors who back this seemingly boring stock could wind up banking some exciting returns.
2. Roblox stock: Down 66% from its high
Roblox (RBLX 1.35%) provides a leading online entertainment platform that hosts thousands of different video games and social hubs. The metaverse stock has been on a wild ride since its initial public offering in March 2021.
Aided by engagement tailwinds created by pandemic-related conditions and the favorable backdrop for growth stocks created by the low interest rate environment, the stock climbed to nearly $135 per share in November 2021. But then the winds shifted, and they shifted quickly.
As social-distancing measures were lifted and relaxed in many parts of the world, people's reliance on online socialization and entertainment ebbed. As a result, Roblox's sequential quarterly engagement growth stalled, and its year-over-year bookings and revenue growth dropped to low single-digit percentages.
Making matters worse, the Fed started rapidly raising interest rates to combat inflation. Not only was Roblox a company with a highly growth-dependent valuation at a time when macroeconomic trends were causing growth stocks to fall out of favor, but its sales expansion slowed to rates that looked quite concerning to many investors.
But Roblox has proven that its business has staying power and returned to posting much stronger engagement, bookings, and revenue growth. For the third quarter, Roblox reported revenue of $713.2 million -- up 38% year over year. Meanwhile, bookings across its platform rose 20% annually to $839.5 million, and net cash from operating activities rose 68% to $112.7 million.
With average daily active users rising 20% to 70.2 million, the metaverse leader is also back to setting new engagement records. And the business could still be at an early stage in its long-term growth trajectory.
Roblox still has plenty of opportunities to capitalize on as the long-term evolution of the metaverse trend continues. With the company posting strong growth again and its share price still down 66% from its peak, the stock could be poised for a massive comeback.
