Lately, growth stocks have taken it on the chin. But that presents an opportunity for investors willing to buy and hold. Despite macroeconomic headwinds, many growth stocks are fantastic businesses that will continue to impress for years to come.
Let’s take a look at three growth stocks that are poised for bull runs in 2023: Advanced Micro Devices (AMD), Cloudflare,(NET) and Airbnb (ABNB).
Advanced Micro Devices
Like so many growth stocks, AMD was battered last year. Shares fell 55% as the Federal Reserve’s aggressive interest rate hikes put pressure on the stock market and growth stocks, in particular. Even so, AMD looks attractive as 2023 gets underway.
Demand for semiconductors continues to grow. They already appear in everything from cars to air fryers — and are likely to expand into even more products in the years to come. That means that AMD’s 2022 acquisition of Xilinx was well-timed. AMD now sells chips in more than just cloud servers, gaming devices, and personal computers (PCs). The addition of Xilinx filled a key gap for AMD, getting it a foothold in the key embedded- and custom-chip market serving the aerospace, defense, and automotive sectors.
And while AMD’s revenue growth is expected to cool in 2023, that cooling has to be put in context. Wall Street expects AMD to grow revenue by about 6% to $24.8 billion in 2023. That’s way down from the sizzling 40% the company averaged over the last five years. However, those estimates leave plenty of room for the company to outperform. If, for example, data center demand is stronger than expected, AMD might beat sales expectations. Similarly, the company’s Embedded segment — now fully integrated — could benefit from an improving economy and fewer supply chain disruptions.
I think AMD’s management can deliver that better-than-expected growth, which means AMD is primed for a bull run — sooner rather than later.
Cloudflare
The second stock that’s poised for a bull run in 2023 is Cloudflare. A cloud services supplier, Cloudflare provides security, performance, infrastructure, reliability, and developer solutions to organizations all over the globe.
After debuting via an initial public offering in 2019, Cloudflare shares have more than doubled over the last four years. Since the company is early in its business life cycle, growing revenue remains Cloudflare’s primary focus. On that front, it has delivered.
The company’s compound annual growth rate (CAGR) over the last three years is 51%. What’s more, its number of large customers (i.e., customers that generate more than $100,000 in annual sales) has expanded from 736 in 2020 to 1,908 as of its most recent quarter (the three months ending on Sept. 29, 2022). That equates to a large customer CAGR of 61%.
Apparently, Cloudflare makes its customers happy. Its dollar-based net retention rate of 124% shows that the company’s customers don’t just stick around — they also grow. In brief, for every $100,000 of sales made to a customer in year one, Cloudflare is growing that figure to $124,000 in year two.
Growth stocks fell in 2022 as the Fed hiked interest rates. But if the Fed eases up in 2023, growth stocks, like Cloudflare, could spring back to life. I think that’s likely to happen as inflation is already showing signs of cooling. Investors willing to ride out a bumpy first half of the year should target Cloudflare now, before it truly begins its next bull run.
Airbnb
Finally, Airbnb rounds out my list of growth stocks ready to make a bull run in 2023. Granted, the company’s stock didn’t perform well last year (shares sank by 49%), but its fundamentals remain impressive.
Critically, revenue continues to march higher. Airbnb recorded $8 billion of revenue over the past 12 months, with quarterly revenue surging 29%. Likewise, the company’s earnings dazzled. Gross profit for the past 12 months stands at $4.8 billion, and diluted earnings per share over the same period were $2.68/share.
What’s more, Airbnb’s industry-specific metrics, like gross booking value (GBV) and average daily rate (ADR), swelled as COVID-19 restrictions faded. GBV grew to $15.6 billion for the three months ending on Sept. 30, 2022, up 31% year over year or 40% if negative foreign-exchange impacts are excluded. Similarly, ADR vaulted to 99.7 million, an increase of 25% year over year.
Yet from a valuation perspective, Airbnb isn’t seeing the love from Wall Street. The company remains near all-time lows across various valuation metrics, such as price-to-earnings, price-to-free-cash-flow, and market cap/gross profit.
That just leaves more opportunities for investors who are willing to take the long view and accumulate Airbnb shares at these prices. With its top-notch business fundamentals, Airbnb looks poised to deliver a big year in 2023.
— Jake Lerch
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Source: The Motley Fool