Do you have $1,000? 2 small growth stocks with big buying potential
Investing is not just for the wealthy, despite the common perception. In fact, there’s never been a better time to deploy small amounts of money in the stock market because thanks to technology, brokerage accounts are easily accessible and fees are at an all-time low.
The stock market has spent much of 2022 on its back as investors grapple with the impact of soaring inflation and rising interest rates. But history suggests that times like these are the best time to make money work for the long haul.
Here are two small stocks with big growth potential, and they’re both trading at deep discounts to their all-time highs. Splitting $1,000 between them could result in a net gain for investors willing to hold over the next five to 10 years.
GoPro (GPRO -4.15%) might be a household name for many people. The company was founded 20 years ago and its cameras have since set the standard in action sports. It was listed on public markets in 2014 and hit a record price of $93.85, but since then has fallen 93% amid the company’s struggle to scale beyond its business model. of origin.
But he is turning the tide. GoPro has successfully added new revenue streams and is once again generating a healthy profit, which could make it a great long-term investment from here.
To complement its innovative cameras, GoPro has added an annual subscription priced at $49.99, which offers loyal customers unlimited cloud storage for their content, the ability to stream live video, and exclusive product discounts. As of the recent second quarter of 2022, 1.91 million users had signed up, representing a 65% year-over-year increase. GoPro estimates that its subscriber base could represent more than $100 million in annual recurring revenue from 2023 with an extremely high gross profit margin of up to 80%, more than double the margin of GoPro’s hardware business. .
Additionally, the company now makes 38% of its sales directly to consumers through the GoPro.com website. Historically, it has relied on large retailers to sell its products, but this new strategy allows GoPro to keep all of the profits from each sale rather than handing some of it over to the stores.
The company generated $149.4 million in non-GAAP net income (profit) from $1.1 billion in revenue over the past four quarters, translating to earnings per share of 0, $92. It puts GoPro stock at a price-to-earnings ratio of just 6.8, a 75% discount to the Nasdaq 100 technology index ratio of 27.2. Put simply, this implies that GoPro’s stock would need to triple just to trade in line with the broader tech market.
With interest rates on the rise, it is reasonable to expect house prices to stagnate or even decline in the short term. Therefore, buying shares in a company that operates in the real estate sector may seem counter-intuitive, but red fin (RDFN -5.54%) built an innovative business that could thrive in the long term.
The company has set up a huge brokerage business run by 2,640 Redfin real estate agents covering 94% of the US population (geographically speaking). This level of scale allows it to charge a much lower listing fee of between 1% and 1.5%, well below the industry standard of 2.5%. Customers are flocking to Redfin, and the company estimates its business model has saved sellers over $1 billion since its inception, so it’s a win for all parties involved.
To help weather the current economic climate, Redfin continues to focus on verticals like home loans and its unique concierge service, which sellers can use to get their home remodeled and staged in preparation for listing. In July, the proportion of Redfin home buyers who obtained a Redfin mortgage reached 15%, nearly doubling from the prior year period and triggering origination growth of nearly 500%.
Redfin is also slowing activity in the riskiest part of its business called iBuying, where it buys homes directly from sellers with the intention of flipping them for a profit. In the second quarter, it sold 45% more homes than in the second quarter of 2021, but only bought 17% more. As this gap widens, the company’s inventory is expected to decline over time, making it less exposed to broader swings in real estate prices.
Redfin stock fell 90% from its all-time high on concerns about the impact of rising interest rates on house prices. But the company still shows strong financial performance. It generated $1.92 billion in revenue in 2021, a 117% jump from 2020. This year, analysts estimate it will surpass $2.4 billion – a slower growth rate but 24.8% strong in the face of a difficult environment.
Business builds for the long haul and the housing market will eventually see a resurgence. This is why now may be the best time to buy stocks.
Antoine Di Pizio has no position in the stocks mentioned. The Motley Fool fills positions and recommends Redfin. The Motley Fool recommends the following options: $13 short calls in August 2022 on Redfin. The Motley Fool has a disclosure policy.