These 2 high-growth stocks may never be so cheap again

If you’re an industry disruptor, 2022 was probably a bad year for you.

Take Airbnb (ABNB 1.43%) and Roku (ROKU 3.51%). Both companies are disrupting massive industries – hospitality and television respectively. Both of their stocks were skyrocketing at the dawn of 2022, but since then they have been crushed, underperforming the S&P500 significantly since the beginning of the year.

ABNB given by Y-Charts

However, these two companies continue to disrupt their respective industries, and both stocks have great upside potential from their current prices. Here’s why shares of these two growth stocks may never be so cheap again.

1. Airbnb: changing the way we travel

Airbnb is different from most growth stocks on the market. First, it struggled at the start of the pandemic, but it flourished during the economic reopening. In the first three quarters of 2022, its revenue grew 46% year-over-year to $6.5 billion.

Another thing that differentiates Airbnb from its peers in growth stocks is that it is highly profitable. It laid off a quarter of its employees at the start of the pandemic and its profitability soared as the travel market rebounded. In the third quarter — its peak season — Airbnb’s profit margin was 42%, and in the last four quarters, its profit margin was 20%. These measures should improve as the company grows.

Airbnb is therefore growing rapidly and is very profitable, but its stock is also reasonably priced. Currently, Airbnb trades at a price-to-earnings ratio of just 41, only marginally more expensive than many slow-growing stocks in the consumer staples sector.

Investors seem to be pricing the stock as if they think the rebound in the travel market will soon falter, and Airbnb’s fourth-quarter guidance gave investors take a break as it forecast revenue growth of 17% to 23%. The stock sold after the earnings report.

While the company’s growth rate is expected to slow from the 46% it has so far this year, Airbnb appears well positioned to gain market share in the travel industry as trends such that remote work will continue to promote home sharing. Airbnb is also better equipped to handle recessions than its hotel rivals because its inventory can adapt more quickly to changes in demand. For example, listings for single rooms jumped 31% in the last quarter as people around the world look for ways to make extra money to help them deal with high inflation.

With its cheap valuation and long-term growth potential, Airbnb stock looks well-positioned to soar when market sentiment changes.

2. Roku: the streaming platform faces a slowdown in growth

Unlike Airbnb, Roku’s stock soared during the early stages of the pandemic as demand for video streaming services increased. However, it started to slip in the summer of 2021, and 2022 brought something of a toll for the company.

Revenue growth has slowed as advertising demand has receded, an industry trend hitting digital ad giants like Alphabet and Metaplatforms also. At the same time, Roku has increased spending in sales and marketing, research and development, and other areas. As a result, after posting strong profits in 2021, it has posted significant losses this year.

However, as with Airbnb, Roku’s long-term history remains intact. It’s the leading streaming platform in the US thanks to its standalone devices and partnerships with TV makers. In the third quarter, it was again the best-selling smart TV operating system in the United States, and it is also advancing in international markets. It was recently launched in Germany and Australia, and it’s now the #2 Smart TV OS in Mexico.

Despite headwinds in the advertising market, Roku’s user base continues to grow. In the third quarter, active accounts grew 16% year-over-year to 65.4 million, and hours streamed increased 21% to 21.9 billion. Additionally, the time people spent watching The Roku Channel nearly doubled year-over-year in the last quarter.

The connected TV market also appears to be at a tipping point disney+ and netflix both are launching their own ad-based levels. This should be a long-term revenue driver for Roku, as it typically takes 30% of ad inventory from streaming services on its platform.

Based on earnings per share of $1.71 in 2021, Roku is trading at a price-to-earnings ratio of just 31. The company won’t return to that level of profitability for some time, but it’s more than capable of doing so over time, especially since it arguably wastes resources on questionable things like smart home devices and even The Roku Channel, making it a direct competitor to its streaming partners.

Roku has a powerful position in the fast-growing connected TV advertising market, and that should pay off when ad spend rebounds again in the next bull market. With Roku’s market cap at under $8 billion, the stock looks like a steal.

Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a board member of The Motley Fool. Suzanne Frey, an executive at Alphabet, is a board member of The Motley Fool. Jeremy Bowman holds positions at Airbnb, Inc., Meta Platforms, Inc., Netflix, Roku, and Walt Disney. The Motley Fool owns and recommends Airbnb, Inc., Alphabet (A shares), Alphabet (C shares), Meta Platforms, Inc., Netflix, Roku and Walt Disney. The Motley Fool recommends the following options: January 2024 long calls at $145 on Walt Disney and January 2024 short calls at $155 on Walt Disney. The Motley Fool has a disclosure policy.

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