A Bull Market Is Here: 2 Underrated Growth Stocks Down 73% and 87% to Buy Right Now

The stock market is back in bull mode and rallying this year thanks to strong corporate earnings, artificial intelligence (AI) excitement, and other factors. The S&P 500 index has already climbed 8% across 2024's trading, and it's up roughly 32% over the last year.

But despite strong bullish momentum for the broader market, some promising stocks have lost ground this year and now trade at huge discounts compared to previous highs. Read on to see why two Motley Fool contributors think you can score big wins by investing in these underrated growth stocks.

Roblox stock: Down 21% this year and 73% from its high

Keith Noonan: Roblox (NYSE: RBLX) is a leading metaverse platform that hosts thousands of different user-created games and experiences. Creators on the platform can make their own content and earn a virtual currency that can be exchanged for real-world cash. In fact, top developers on the platform can earn some serious dough.

Independent creators earned roughly $221.8 million for content made and distributed on Roblox in the fourth quarter, up roughly 22% compared to the $182.1 million it paid out in the prior-year quarter. Thanks to a strong incentive structure that promotes the creation of user generated content, new games and social experiences are being added to the platform all the time. In turn, this has helped drive strong growth for user engagement and spending.

The company ended the quarter with 71.5 million average daily active users -- up 22% year over year. Thanks to substantial growth for the company's active user base, the company logged 15.5 billion total engagement hours on its platform in Q4 -- up 21% compared to the prior-year period. Roblox also managed to increase monetization per user, with average bookings per daily active user rising 3% year over year to hit $15.75.

With these catalysts, the company's bookings (that's the total spent by users on the company's platform) rose 25% year over year to hit $1.13 billion; meanwhile, revenue (which is the bookings minus the fees it pays to independent creators) rose 30% to reach $749.9 million. But while Roblox is posting strong sales growth, the company's net loss in Q4 also rose roughly 11% over the prior-year period to hit $325.3 million.

Some investors have lost confidence in the company's ability to scale profitably. As a result, the stock has slipped 14% in 2024 -- and it's now down 72% from its high.

With the business still posting big losses, Roblox is a relatively high-risk stock and won't be a great fit for every investor. But the metaverse stock has explosive return potential, and I believe the risk-reward profile is attractive right now. Notably, Roblox has just started to pull the levers to monetize its platform as a digital advertising hub, and its opportunities in generative AI continue to be underestimated.

For risk-tolerant investors seeking beaten-down stocks with multibagger potential, Roblox is a worthwhile buy.

Roku stock: Down 31% this year and 87% from its high

Jennifer Saibil: Roku (NASDAQ: ROKU) stock has been slammed from multiple angles so far in 2024. Not only were investors unenthusiastic about its fourth-quarter earnings report released in the middle of February, but they didn't take well to Walmart's announcement that it would acquire Roku competitor Vizio.

But this looks like a short-sighted reaction to current events that doesn't take into account the many reasons Roku looks like a solid bet right now. Roku is building up its business and gaining new customers for its platform. That leads to higher viewing hours, and eventually, should lead to more ad dollars, sales, and profits.

Fourth-quarter performance was strong, with a 14% increase in revenue driven by both of its segments, device and platform. The platform segment is much bigger, accounting for 86% of total revenue in the fourth quarter, but the device segment plays a crucial role in the model. Customers become account holders when they purchase a Roku device and use Roku's operating system. When they sign up and engage with Roku's system, Roku gets more people viewing content on its free channels, and that's what draws in advertisers.

Roku's ad business has struggled, along with the greater advertising industry, due to inflation and lower budgets. But it's well-positioned to grab greater market share in the ad-supported streaming business as it bounces back. In the fourth quarter, accounts increased 14% year over year to 80 million, and viewing hours increased 21%. Viewing hours on the free Roku channel were up 63% over last year.

The company posted a surprise profit early in the pandemic when streaming exploded, but it was over quickly, and Roku has been struggling to get back to profitability. That's putting off investors, but there's been improvement. Gross margin improved by 2.5 points year over year in the fourth quarter to 44.5%, and total expenses declined 12%. Operating loss improved 58%, and Roku reported its second consecutive quarter of positive free cash flow.

There's still work to do. But Roku has incredible potential, and this is an excellent opportunity to buy on the dip.

Should you invest $1,000 in Roblox right now?

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Jennifer Saibil has no position in any of the stocks mentioned. Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Roblox, Roku, and Walmart. 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.


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