With the S&P 500 index at a price-to-earnings ratio (P/E) of 31, it can feel impossible to find any reasonably priced growth stocks. Microsoft has a P/E ratio of 38, while Palantir Technologies trades at over 100 times sales. Anything associated with the artificial intelligence (AI) boom seems to be trading at a nosebleed earnings multiple.
So what should an investor do who is hunting for growth stocks to buy today? Of course, the answer is to avoid buying stocks deemed AI winners. Here are two incredible growth stocks trading at cheap valuations that I can't stop buying for my own portfolio.
NASDAQ: RELY
Key Data Points
Remitly's clear opportunity
Born along with smartphone adoption, Remitly Global (RELY +1.42%) is a mobile disruptor in the remittance space. Remittances are international money transfers, where an individual or business needs to send money to someone in another currency. With a boatload of regulations, necessary fraud and criminal protections, and payout complications, this is a much harder business to build than it seems.
Remitly has been able to disrupt the traditional providers by making it easy for someone working in a wealthy country such as the United States to fund their account and quickly send money to someone abroad with a minimal fee. Customers can send money to 170 countries and allow the recipient to take out the money digitally or via cash disbursement.
Building a better remittance solution has enabled Remitly to quickly capture market share. Send volume grew 40% year over year last quarter to $18.5 billion, which greatly outpaced overall remittance payments. Revenue grew 34%, and the company is now beginning to generate a profit with an operating income of $6.5 million. Its operating margin is slim today, but with a strong gross margin Remitly has plenty of room to gain operating leverage over the next few years.
Investors are worried about potential stablecoin disruption, remittance taxes, and immigration crackdowns impacting Remitly's growth trajectory. A remittance tax was implemented in the United States, but on physical cash payments only and will actually benefit Remitly. Stablecoins are not going to disrupt Remitly's business, but are simply another way someone can fund a Remitly account, where they can then transfer the money and offramp to a local fiat currency (which is the whole point of a service such as Remitly). Immigration crackdowns may impact Remitly at the margin, but investors should remember that this is a growing global business taking market share that still grew send volume 40% year over year last quarter.
Today, Remitly trades at an expensive-looking P/E ratio, but that is because it is just at the beginning of its profit margin inflection. It trades at a price-to-sales ratio (P/S) of just 2.4, even though it is growing rapidly and has a strong gross margin. Bet on Remitly stock and watch the gains pile in as it begins to see a huge profit inflection over the next few years.
Image source: Airbnb.
Betting big on Airbnb
One company that has been continuously doubted in a similar way to Remitly is Airbnb (ABNB +0.46%). The travel hosting platform keeps growing and taking market share, but its share price is still down 41% from highs set in 2021 when it went public.
Many factors should enable Airbnb to keep growing revenue in the double digits, as it has for many years now (revenue grew 13% year over year last quarter). One is the general growth in the global travel market, which generally grows above the level of GDP. Second is Airbnb's push to expand its product internationally to new markets where it has a low share of bookings. These include huge travel markets such as Japan, where Airbnb is now growing quickly. Third is the fact Airbnb bookings skew toward younger travelers, meaning it should keep gaining market share as these demographics get older and while older citizens age out of being heavy travelers.
What's more, Airbnb has plenty of other levers to keep growing its revenue in the years to come. These include potentially adding sponsored listings, growing its new categories in experiences and services, and building a customer loyalty program. There are numerous ways Airbnb can upsell both its guests and hosts, giving it a long runway for growth over the next decade.
Today, Airbnb trades at an enterprise value-to-EBIT (earnings before interest and taxes) of 27. This is a good fill-in for a P/E ratio that reflects Airbnb's huge cash position on its balance sheet. As a fast-growing business with a long runway to expand, Airbnb looks like a bargain trading at an earnings ratio below the S&P 500's average P/E ratio right now.
