Many top growth stocks have been falling significantly over the past several months. And for investors who are willing to hang on for the long haul, there can be some incredibly attractive buying opportunities out there.
Three stocks that have fallen more than 20% in the past six months but have strong businesses are Cresco Labs (OTC: CRLBF), Shopify (NYSE: SHOP), and Walt Disney (NYSE: DIS). Although these declines might look concerning, buying these stocks now could pay off in the years ahead.
1. Cresco Labs
Legalization might not be coming to the U.S. marijuana industry anytime soon as President Joe Biden has not shown much interest in the issue. But that doesn't mean the sector isn't ripe for growth; cannabis research firm BDSA projects that the global marijuana market will grow at a compound annual rate of 22% and be worth more than $47 billion by 2025.
One company that can be a key part of that growth is multi-state operator Cresco Labs. The Chicago-based pot producer has been growing while consistently generating strong margins. In its most recent quarter, for the period ending Sept. 30, 2021, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) totaled $56.4 million and was more than 26% of revenue, which came in at $215.5 million. Just a year ago, the company's top line was $153.3 million. And for the fourth quarter, Cresco expects to continue to see that revenue number climb sequentially to between $235 million and $245 million.
Through acquisitions in multiple markets, including Pennsylvania, Massachusetts, and Ohio, Cresco is steadily growing its presence and capitalizing on more opportunities. Trading at a price-to-sales multiple of just over 2, it's also incredibly cheap compared to cannabis giant Curaleaf Holdings, which investors are paying more than 4 times revenue for.
Cresco is an exciting growth stock that could be a steal of a deal at its current share price.
The pandemic has given shoppers extra motivation to buy goods online, whether it's out of safety concerns or because vendors simply offer more-convenient pickup and delivery options. And nearly two years into the COVID-19 crisis, there continues to be strong growth in the sector.
During the Black Friday and Cyber Monday weekend of 2021, there was $6.3 billion spent on Shopify's e-commerce platform, representing a year-over-year increase of 23%, and more than doubling 2019's tally.
Impressive growth isn't new for Shopify, as the business has grown from revenue of $389 million in 2016 to more than $2.9 billion in 2020. In the trailing 12 months, its sales have risen to more than $4.2 billion.
And there's still no reason to expect the growth to stop. In January, the company announced a partnership with JD.com, a Chinese e-commerce site, which will make it easier for Chinese companies to sell to Western markets through Shopify's platform.
Shopify is trading at levels not seen since mid-2020. Today, its business is much safer than in years past, recording both consistent profits and positive free cash flow. If you're waiting for the stock to drop much lower, you might miss a golden opportunity to secure this top growth stock at a great price.
3. Walt Disney
Investors have been lukewarm about Walt Disney after the company's fourth-quarter earnings report in November 2021 failed to impress. Not only did earnings per share miss the mark ($0.37 on an adjusted basis versus estimates of $0.51), but the company also warned that subscriber growth for Disney+ could be a challenge. For the period ending Oct. 2, 2021, the company added just 2.1 million subscribers from the previous quarter while analysts were expecting 9.4 million.
But Disney isn't the only streaming company struggling with growing its subscriber numbers; rival Netflix also disappointed shareholders in its latest earnings report. With so many streaming services out there in addition to Disney+ and Netflix (like HBO Max and Peacock), the competition for subscribers is fierce, especially with inflation making it harder for consumers to juggle them all.
However, Disney is known for its quality content and isn't a company I'd bet against in this arena. And it still isn't operating at where it will be once COVID isn't hampering its theme parks. For the past fiscal year, revenue from its parks, experiences, and products segment totaled $16.6 billion. Two years ago, that number was up over $26 billion.
Disney will be a big winner from a return to normal in the economy. And even if its streaming numbers may not experience significant growth, there are still plenty of opportunities in other areas of its business. Trading near its 52-week low and at a forward price-to-earnings ratio of 33 -- similar to Netflix (which isn't nearly as diverse of a business) -- Disney's stock is definitely one of the best bargains out there right now for growth investors.
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David Jagielski owns Cresco Labs Inc. The Motley Fool owns and recommends Cresco Labs Inc., JD.com, Netflix, Shopify, and Walt Disney. The Motley Fool recommends the following options: long January 2023 $1,140 calls on Shopify, long January 2024 $145 calls on Walt Disney, short January 2023 $1,160 calls on Shopify, and short January 2024 $155 calls on Walt Disney. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.