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Undervalued growth stocks are getting more difficult to find.
The last two years offered one of the best money-making opportunities in growth stocks. The current year has however been challenging with a big correction in high-flying growth stocks.
Amidst market volatility, investor focus should be on business development. This will help in spotting undervalued growth stocks with a good business model and healthy fundamentals.
It’s worth noting that over a 10-year period, the S&P 500 Pure Growth Index has delivered annualized returns of 13.2%. The phases of price and time correction have been more than offset by the upside during the bull-market.
It therefore makes sense to grab undervalued growth stocks when sentiments seem bearish. It is impossible to assign near-term targets for these growth stocks. Factors such as inflation, aggressive rate hikes and a possible recession have created uncertainties. However, I can say with some conviction that these stocks will be value creators when sentiments reverse for the markets.
Let’s discuss the positive factors that make these undervalued growth stocks interesting.
GRABGrab Holdings$2.95MULNMullen Automotive$0.44AIC3.ai$13.44SNAPSnap$11.12EVGOEVgo$8.70HUTHut 8 Mining$2.45Grab Holdings
Source: Nor Sham Soyod / Shutterstock.comGrab Holdings (NASDAQ:GRAB) stock has plunged by almost 70% in the last 12-months. One of the largest ride-sharing and grocery delivery companies in Southeast Asia looks attractive at current valuations.
Grab reported healthy top-line growth of 79% on a year-on-year basis for Q2 2022. While the company continues to report adjusted EBITDA losses, margins have improved in the last few quarters. Once EBITDA break-even is achieved, the stock is likely to surge higher. The company has already guided for break-even in the deliveries business in 1H 2023.
It’s also worth noting that Grab is well diversified. The company operates in four key segments that include delivery, mobility, financial services and enterprise services. With presence in one of the biggest growth markets, I expect the top-line momentum to sustain.
GRAB stock looks massively undervalued at $3.1. With the mobility business also gaining momentum as tourism increases, I expect the stock to quickly double from current levels.
Mullen Automotive
Source: betto rodrigues / Shutterstock.comMullen Automotive (NASDAQ:MULN) is another name among undervalued growth stocks that I would grab at current levels. MULN stock has plummeted by 95% in the last 12 months. With few positive business developments, I would still bet on a sharp reversal.
In recent news, Mullen has agreed to acquire a 60% stake in Bollinger Motors for a consideration of $148.2 million. With this acquisition, Mullen is likely to make inroads in the EV truck segment. Bollinger already has 50,000 reservations for its B1 and B2 consumer trucks.
Mullen will also be launching its FIVE EV crossover vehicle in October 2022. This is another potential catalyst for stock upside. It’s also worth noting that in July 2022, Mullen announced an order for 600 Mullen Class 2 EV cargo vans.
Amidst all these developments, MULN stock seems attractively valued. Without a doubt, it’s a high-risk stock. However, at current levels, the downside is capped and the upside potential is significant.
C3.ai
Source: Tada Images / Shutterstock.comAfter listing in 2020 and delivering some big moves, C3.ai (NYSE:AI) stock has witnessed a deep correction. With decelerating growth, AI stock has plunged by 70% in the last 12 months.
At current levels, the stock is worth considering as the company makes changes to its business model to boost growth.
The enterprise artificial intelligence software company was primarily focused on subscription-based revenue. However, the company has shifted to a consumption-based fee from clients. This is similar to the model followed by a bigger entity like Snowflake (NYSE:SNOW).
For Q1 2023, C3.ai reported 25% top-line growth on a year-on-year basis. For the same period, customer growth was 27%. As a matter of fact, customer growth has been sustained in the last five quarters.
Once the consumption revenue model gains traction, revenue growth is likely to accelerate. C3.ai is also targeting significant improvement in operating margin in the next two to three years.
Snap
Source: dennizn / Shutterstock.comSnap (NYSE:SNAP) is another big under-performer among growth stocks in the last few quarters. However, the company’s restructuring plan is likely to translate into accelerated growth towards the end of 2023. In all probability, the worst is over for SNAP stock.
In a leaked internal memo, Snap CEO talks about achieving $6 billion in revenue and 450 million active users in 2023. A bulk of the revenue is likely to come from the paid subscription introduced by the company.
With Snap also focused on cutting costs (including significant lay-offs), I expect improvement in EBITDA margin. The CEO expects to deliver at least $1 billion in free cash flow in 2023. It remains to be seen if this target is achieved. However, any progress in the right direction would translate into a stock rally from oversold levels.
It’s worth noting that as of Q2 2022, Snap reported cash and equivalents of $4.9 billion. The company has ample financial flexibility to make aggressive investments in product development. Investments in the augmented reality platform are likely to deliver results.
EVgo (EVGO)
Source: Felipe Sanchez / Shutterstock.comConsidering the potential investment and ambitious targets for electric vehicle adoption, EV charging stocks are attractive. EVgo (NASDAQ:EVGO) is among the undervalued growth stocks to consider.
President Biden is likely to announce $900 million in U.S. EV charging funding. To lower dependence on energy from Russia, Europe also has ambitious EV targets. This is likely to benefit EVgo in the coming years.
For Q2 2022, EVgo reported revenue growth of 90% on a year-on-year basis. For the same period, the company reported 2,397 stalls in operation or under construction. With ample scope for penetration within the United States, the number of operating stalls is likely to increase at a healthy pace.
It’s also worth noting that most EV charging companies have made inroads into Europe through the acquisition route. I would not be surprised if EVgo pursues the same strategy to expand the addressable market.
Overall, EVGO stock has been sideways to lower for year-to-date 2022. Considering the positive industry tailwinds, a big break-out seems to be on the cards.
Hut 8 Mining
Source: Michal Bednarek / ShutterstockHut 8 Mining (NASDAQ:HUT) stock currently trades below $2 and is significantly undervalued. For Q2 2022, Hut 8 reported revenue of $43.8 million. Even with headwinds for the industry, the company managed to report positive adjusted EBITDA of $6.8 million.
It’s worth noting that the company ended Q2 2022 with a hashing capacity of 2.78EH/s. Hut 8 expects to increase capacity to 3.55EH/s by the end of 2022.
Therefore, growth is likely to sustain in terms of the number of Bitcoin (BTC-USD) mined per quarter. Hut 8 already has 8,111 self-mined Bitcoin as reserves. This provides ample financial flexibility in addition to $60 million in cash.
After a big correction, Pinterest (NYSE:PINS) stock has been in a recovery mode. In the last one-month, the stock has trended higher by 16%. I still believe that PINS stock remains undervalued.
For Q2 2022, Pinterest reported subdued revenue growth of 9% on a year-on-year basis. However, excluding U.S. and Europe, top-line growth was 71%. Emerging markets can be a potential growth accelerator in the coming years.
The trend is similar when it comes to average revenue per user. Global ARPU growth for Q2 2022 was 17% on a year-on-year basis. ARPU growth excluding U.S. and Europe was 80%. Clearly, there are positives and PINS stock still has a lot to offer.
With Pinterest focused on being e-commerce friendly, advertising revenue is likely to swell. Pinterest also has a strong balance sheet and it gives the company flexibility to make investments on platform improvement.
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.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.
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