Investors seeking significant returns often turn to growth stocks, renowned for their potential to deliver substantial capital appreciation over time. These stocks typically operate in cutting-edge industries, leveraging disruptive technologies or business models to gain a competitive edge. On the lookout for growth opportunities that won’t break the bank, here we delve into two captivating stocks priced under $100, offering tantalizing prospects for long-term investors.
Unveiling the Roblox Phenomenon
Established in 2004, Roblox (RBLX) began its journey somewhat incognito. However, over time, the platform garnered momentum, propelled by a unique concept allowing users to craft and share their games within an expansive virtual universe.
Diverging from conventional video games, Roblox empowers users to unleash their creativity, developing games using Roblox Studio and monetizing their creations through virtual goods sales. The platform’s availability across various operating systems such as Windows, Mac, and Android significantly contributed to its broad appeal.
While Roblox witnessed a 60.6% surge in its stock value last year, the current year has seen a dip of 11.4%. In stark contrast, the S&P 500 Index has surged by 8.7% during the same period.
The onset of the global pandemic led to a surge in platform demand for Roblox, translating into a revenue spike from $508.4 million in 2019 to $2.79 billion in 2023. The company witnessed double-digit revenue growth across all quarters in 2023, with a staggering 30% increase in the most recent quarter. Notably, bookings saw a 25% year-over-year boost in the fourth quarter, coupled with a 22% rise in average daily active users to 71.5 million.
Despite robust revenue growth, Roblox reported a $1.15 billion net loss for the year. Nevertheless, boasting $2.2 billion in cash, cash equivalents, investments, and being net debt-free, the company closed 2023 with a healthy free cash flow balance of $124 million. This financial fortitude positions Roblox favorably to continue investing in AI initiatives and advertising efforts to drive profitability.
Looking ahead, management anticipates robust bookings in the range of $910 million to $940 million for Q1 2024, with revenue projected between $755 million and $780 million. Full-year revenue is estimated to grow by 18% to 22%, with analysts forecasting incremental revenue upswings of 20% in 2024 and 18.8% in 2025. Trading at 5.9 times forward estimated 2024 sales, Roblox poses as a compelling buy opportunity, given its promising ventures in robotics, machine learning, and AI.
Currently, Wall Street analysts hold a “moderate buy” outlook on Roblox stock, with an average target price of $49.05, indicating a potential 20.9% upswing from present levels. The high target price of $60 hints at a whopping 48% ascent within the next year.
Palantir’s Data Analytics Ascendancy
Palantir Technologies (PLTR), renowned for its data analytics prowess, is fast expanding due to its innovative Artificial Intelligence Platform (AIP) heralded by both government and commercial entities alike.
Although the company exceeded consensus estimates in its recent quarterly report on May 6, the stock witnessed a slight decline due to management’s cautious outlook for the year. Nonetheless, PLTR stock has outperformed the market, boasting a 24.6% surge year-to-date.
Palantir’s revenue stream heavily leans on government contracts, constituting approximately 53% of its total revenue. In Q1 2024, the government segment raked in $335 million, marking a 16% year-over-year growth, with a total revenue surge of 21% closing at $634 million.
With the sixth consecutive profitable quarter in Q1, tallying a net profit of $106 million under GAAP principles, Palantir’s sustainability hinges on expanding its commercial foothold. The company’s incursion into commercial territories aims to diversify its client base, given its present reliance on a limited set of government contracts.
Venturing into commercial horizons, Palantir inked pivotal agreements with esteemed entities like CAZ Investments, PwC, and Oracle (ORCL). The collaboration with Oracle, a tech titan, to furnish secure cloud and AI solutions to government and business domains bodes well for Palantir’s commercial segment enhancement. Management foresees a 45% uptick in U.S. commercial revenue during 2024, targeting a total revenue band of $2.67 billion to $2.69 billion for the year, with all quarters anticipated to yield GAAP profits.
Palantir concluded Q1 with $3.9 billion in cash, cash equivalents, and short-term U.S. treasuries, accentuated by an adjusted free cash flow of $149 million. The prognostication of an adjusted FCF ranging between $800 million and $1 billion for 2024 underscores Palantir’s favorable financial standing.
Despite robust growth trajectories, the stock’s elevated valuation has underpinned a predominantly bearish sentiment among Wall Street analysts. Currently assessed at 77 times forward projected 2024 earnings and 19 times forward 2024 sales estimates, Palantir is anticipated to witness revenue growth of 21.4% in 2024 and 20% in 2025, coupled with earnings expanding by 30.5% in 2024 and 20.8% in 2025.
Riding a “hold” rating on Wall Street, PLTR stock does face mixed sentiments, with analysts positioning two as “strong buy,” one as “moderate buy,” six as “hold,” one as “moderate sell,” and four as “strong sell.” The stock currently trades above its mean target price of $20.85, with a high target price of $35 forecasting a potential 63.6% upsurge over the ensuing year.
While the Wall Street jury remains divided on PLTR, envisioning it as a top AI contender due to its promising AI prospects, prudence advises holding Palantir stock for the long haul amid its lofty valuation.