While tech stocks remain under the pump, beaten-down companies such as Roku and Upstart should be on top of your buying list right now.
Jan. 28, 2022
Growth stocks part of the technology sector have pulled back significantly in recent months. Equity market participants are now looking to invest in stocks trading at reasonable valuations with interest rates hikes on the cards. However, the sell-off in tech stocks also provides an opportunity to buy quality companies at lower multiples.
Here, we look at two popular tech stocks with massive upside potential according to Wall Street estimates.
Valued at a market cap of $7.4 billion, Upstart (NASDAQ: UPST) stock is trading 77% below record highs. Upstart went public in December 2020 and gained close to 800% by October 2021. A key reason for Upstart’s staggering gains is its compelling revenue growth rates.
Upstart’s sales rose from $96 million in 2018 to $227.6 million in 2020. In the last 12-months, revenue stands at $620.6 million and is forecast to touch $807 million in 2021 and $1.21 billion in 2022. Comparatively, Upstart’s adjusted earnings are expected to rise from $0.23 per share in 2020 to $2.34 per share in 2022.
UPST stock is valued at a forward price to 2022 sales multiple of 6.1x and a price to earnings multiple of 38.5x, which is attractive. Upstart is a solid long-term bet for investors. It currently derives a majority of sales via origination of personal loans and has also entered the automotive loan segment, which is a much larger vertical.
At the end of Q3 of 2021, the number of dealerships that use Upstart’s Auto Retail product has risen to 291, up from 91 in the year-ago period. The company can also leverage its expertise to enter the trillion-dollar housing loan market in the near future.
Analysts tracking UPST stock have a 12-month average price target of $243, 170% higher than its current trading price.
Roku (NASDAQ: ROKU) is another beaten-down tech stock that should be part of your shopping list right now. Roku went public in Q4 of 2017 and has returned over 500% to investors in less than five years. However, ROKU stock is also down 69% from all-time highs.
In the first three quarters of 2021, Roku increased sales by 68% year over year. Wall Street expects sales in 2021 to touch $2.8 billion, an increase of 57% year over year. Further, the top-line is forecast to grow by another 35% to $3.77 billion in 2022.
Roku stock is trading at a forward price to sales multiple of 5.2x, making it an attractive bet for contrarian and growth investors.
In Q3 of 2021, Roku’s active accounts rose by 23% year over year to 56.4 million, while average revenue per user grew by 49% to $40.10, allowing the company to increase sales by 51% and adjusted EBITDA by over 100%.
The Roku Channel was also among the five most popular channels on its platform, as the number of streaming hours more than doubled year over year in Q3. The company’s proprietary channel should act as a flywheel, allowing Roku to improve user engagement and drive ad sales higher in 2022 and beyond.
Wall Street expects Roku stock to move higher by 134% in the next 12-months, given average price target estimates.