With equity markets, investors should expect the unexpected. At this time last year, many growth stocks were sitting on multi-bagger returns. But the trend reversed and dozens of growth plays plunged by over 50%. The one good thing about this is there are now plenty of undervalued growth stocks to buy.
However, it’s important to be selective as global economic conditions remain uncertain. Investors should focus on industries that have growth tailwinds beyond the current decade, such as electric vehicles, e-commerce, mobile sports betting and cannabis. Companies in these industries should see healthy revenue growth and improving margins with economies of scale.
As macroeconomic headwinds wane, these quality undervalued growth stocks should deliver multi-bagger returns once again.
| NIO | Nio | $10.63 |
| LCID | Lucid Group | $13.92 |
| BLNK | Blink Charging | $14.55 |
| SE | Sea Limited | $50.01 |
| TLRY | Tilray Brands | $3.58 |
| DKNG | DraftKings | $14.10 |
| PINS | $22.59 |
Undervalued Growth Stocks: Nio (NIO)
Both Chinese stocks and electric vehicle stocks have been unpopular with investors in 2022. So, it’s no surprise shares of Chinese EV maker Nio (NYSE:NIO) have plummeted more than 66% so far this year.
This week, the stock hit levels not seen since July 2020 following news that Chinese President Xi Jinping would serve a third term. While investors are clearly nervous about the policy implications, this seems like a golden opportunity to buy shares of Nio around $10.
The EV maker reported that its third-quarter deliveries rose 29% year over to 31,607 vehicles. Two factors are likely to continue to support growth in deliveries. First and foremost, Nio has an attractive pipeline of new models. Its diversified offerings should spur growth in its home market of China.
Second, Nio is looking to aggressively expand in multiple European countries, providing the company with new markets for its EVs. Its $8 billion in cash on hand at the end of the second quarter should go a long way in supporting its European expansion plans.
Lucid Group (LCID)
Lucid Group (NASDAQ:LCID) is another undervalued growth stock in the EV space that’s worth buying at current levels. The stock is down 63% year to date but could see big gains once supply chain headwinds ease.
In the company’s second-quarter update, it said it has seen 37,000 reservations for its Lucid Air, implying a revenue backlog of $3.5 billion. With Lucid aggressively expanding internationally, that backlog is likely to swell.
The company has already opened studios in Germany and Saudi Arabia. Further, Lucid is taking online orders from multiple European countries. It also started construction on its first international plant in Saudi Arabia. And the Saudi government has placed an order for up to 100,000 Lucid EVs.
Once near-term headwinds for the EV industry wane, LCID stock is likely to surge higher.
Undervalued Growth Stocks: Blink Charging (BLNK)
Numerous countries have outlined ambitious EV transition plans. None of these will be possible without a robust EV charging infrastructure. For example, the United States plans to build a network of half a million EV charging stations by 2030. And it’s estimated Europe will need 65 million charging stations by 2035. Given this, it’s clear the biggest growth days for EV charging infrastructure companies like Blink Charging (NASDAQ:BLNK) are yet to come.
BLNK stock is down 47% year to date despite the fact that the company continues to grow at a robust pace. For the second quarter, revenue surged 164% year over year to $11.5 million through a combination of organic growth and acquisitions. In April, the company acquired Electric Blue, which has helped expand Blink Charging’s presence in the U.K. This was followed in June by the acquisition of SemaConnect, which significantly expanded its U.S. network.
With growth in EV networks coupled with acceleration in services revenue, margin expansion is in the cards. BLNK is an undervalued growth stock with multi-bagger return potential.
Sea Limited (SE)
Among e-commerce names, Sea Limited (NYSE:SE) looks deeply undervalued. Sure, cash burn has been a concern amid slowing growth. But the Southeast Asian market in which the company operates presents a huge opportunity. For this reason, the stock’s nearly 80% year-to-date drop seems overdone.
For the second quarter, Sea Limited reported revenue growth of 29% year over year to $2.9 billion. While this represents a marked slowdown from its pandemic heydey, management has said it is “rapidly prioritizing profitability and cash flow management.” If the company can reduce its cash burn significantly in the coming quarters, SE stock is likely to trend higher even if revenue growth remains sluggish.
One particularly bright spot in the company’s latest results was the 53% year-over-year growth in quarterly active users to 52.7 million. Sea Limited is quickly growing its market share in the lucrative Southeast Asian market and the ever-expanding online retail sector.
I would consider adding shares of this undervalued growth stock to a portfolio following their big plunge.
Undervalued Growth Stocks: Tilray Brands (TLRY)
Investors in the cannabis industry have been awaiting an inflection point in the sector for a long time. The most likely catalyst for this is legalization at the federal level in the United States. If this happens, Tilray Brands (NASDAQ:TLRY) is one of the companies best positioned to benefit.
However, legalization is not the stock’s only potential upside catalyst. Tilray expects to be free cash flow positive in its fiscal 2023 year, which ends May 31. Given the growth outlook for the industry, FCF is likely to accelerate in the coming years.
I also like the fact that Tilray has a leading market share in medicinal cannabis in Germany. With the company receiving authorization for medicinal cannabis expansion in several European countries, the segment outlook is positive. By 2030, it’s estimated that the global medicinal marijuana market will be worth more than $248 billion.
After a 49% year-to-date haircut, TLRY stock looks deeply undervalued.
DraftKings (DKNG)
DraftKings (NASDAQ:DKNG) rode enthusiasm for online betting plays to an all-time high above $74 in March 2021. However, a revised growth outlook and cash burn have translated into a deep correction that has seen shares decline by more than 80% from their high to trade at pre-pandemic levels. Now, though, DKNG stock finally seems to have found a bottom. I expect shares to trend higher after consolidation.
DraftKings is projecting an $800 million loss for the full year due in part to selling and marketing expenses. However, revenue is projected to increase 65%. Meanwhile, the company’s average number of monthly unique paid users and revenue per payer are on the rise, which should help it reach profitability.
As more states legalize sports betting and online gambling, DraftKings’ addressable market will expand. This provides visibility for revenue growth. With Q3 results due in early November, it makes sense for growth investors to consider a long position at current levels.
Undervalued Growth Stocks: Pinterest (PINS)
Pinterest (NYSE:PINS) is another stock that seems on the verge of a reversal rally after falling victim to investors’ overreaction to revised growth numbers. Over a 12-month period, PINS stock is lower by 61%. However, in the past six months, shares have trended higher by 15%. This indicates that valuations are attractive with the stock remaining resilient amid broader market volatility.
For the second quarter, the company reported 9% revenue growth on a year-on-year basis to $666 million. Growth sustained even as global monthly active users declined by 5%. The key reason for this was the 17% growth in global average revenue per user from a year ago. Outside of the United States, Canada and Europe, growth in ARPU was even hotter, rising 80% year over year. If this trend sustains, Pinterest’s cash flows will swell.
Pinterest has also been focused on making its platform shopping friendly and is offering advertisers in 34 markets a “creative new ad format,” according to its shareholder letter. This should help bolster growth in global ARPU.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.