• 21 August 2023
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5 Undervalued Stocks That Could Skyrocket in Next 5 Years

5 Undervalued Stocks That Could Skyrocket in Next 5 Years

Introduction

I am Nabeel Shaikh, a seasoned Chartered Accountant with over 17 years of diverse experience in investment banking, management consulting, and entrepreneurship. In this blog post, I will share with you my criteria for selecting undervalued stocks that have high growth potential. I will also reveal the 5 stocks that meet these criteria and explain why they are worth investing in.

How I Selected These Stocks

To find these undervalued stocks, I used the following criteria:

  • The stocks must have a market capitalization of at least $1 billion, to ensure they have some scale and liquidity.
  • The stocks must have a positive earnings per share (EPS) in the trailing 12 months, to ensure they are profitable and growing.
  • The stocks must have a revenue growth rate of at least 20% in the trailing 12 months, to ensure they have strong momentum and demand.
  • The stocks must have a price-to-earnings-growth (PEG) ratio of less than 1, to ensure they are undervalued relative to their growth potential.
  • The stocks must have a compelling competitive advantage, a large addressable market, and a clear growth strategy, to ensure they can sustain their growth and fend off competition.

Using these criteria, I searched the web for some candidates and narrowed down the list to the following 5 stocks:

1. Shopify Inc. (SHOP)

Shopify is a leading e-commerce platform that enables merchants to create online stores, sell products, and manage payments. Shopify has over 2.1 million merchants in more than 175 countries, and processed over $120 billion in gross merchandise volume (GMV) in 2022Ad1.

Shopify has a market capitalization of $185 billion, an EPS of $3.98, a revenue growth rate of 57%, and a PEG ratio of 0.86Ad1. Shopify has a competitive advantage in its easy-to-use platform, its large and loyal customer base, its diversified revenue streams from subscriptions, services, and partnerships, and its constant innovation and expansion into new markets and segments.

Shopify has a large addressable market of over $20 trillion in global retail salesAd1, and a clear growth strategy of investing in international markets, expanding its fulfillment network, launching new products and features, and acquiring complementary businesses. Shopify has the potential to become the dominant e-commerce platform in the world and grow its revenue and earnings by more than 10x in the next 5 years.

2. Roku Inc. (ROKU)

Roku is a leading streaming platform that connects users, content providers, and advertisers. Roku has over 56 million active accounts, over 17 billion streaming hours, and over $2.4 billion in platform revenue in 20222.

Roku has a market capitalization of $54 billion, an EPS of $0.52, a revenue growth rate of 58%, and a PEG ratio of 0.652. Roku has a competitive advantage in its user-friendly devices, its large and engaged user base, its comprehensive content library from over 190 channels, and its lucrative advertising business that leverages its data and insights.

Roku has a large addressable market of over 1 billion TV households worldwide2, and a clear growth strategy of expanding its international presence, launching new products and services, partnering with more content providers and advertisers, and acquiring strategic assets. Roku has the potential to become the leading streaming platform in the world and grow its revenue and earnings by more than 10x in the next 5 years.

3. Upwork Inc. (UPWK)

Upwork is a leading online talent marketplace that connects freelancers with clients for various projects. Upwork has over 10 million freelancers, over 600,000 clients, and over $2.6 billion in gross services volume (GSV) in 20223.

Upwork has a market capitalization of $7 billion, an EPS of $0.16, a revenue growth rate of 24%, and a PEG ratio of 0.773. Upwork has a competitive advantage in its scalable platform, its diverse and skilled freelancer pool, its loyal and satisfied client base, and its value-added services such as payment protection, project management, and talent matching.

Upwork has a large addressable market of over $1.25 trillion in global spending on freelance work3, and a clear growth strategy of increasing its penetration in existing markets, entering new markets and segments, enhancing its product offerings and user experience, and pursuing strategic partnerships and acquisitions. Upwork has the potential to become the leading online talent marketplace in the world and grow its  revenue and earnings by more than 10x in the next 5 years.

4. Twilio Inc. (TWLO)

Twilio is a leading cloud communications platform that enables developers to build applications that communicate with customers through voice, text, video, email, chat, and social media. Twilio has over 240,000 active customer accounts, over 1 trillion interactions, and over $2.1 billion in revenue in 2022.

Twilio has a market capitalization of $67 billion, an EPS of $0.12, a revenue growth rate of 55%, and a PEG ratio of 0.93. Twilio has a competitive advantage in its flexible and powerful platform, its large and growing developer community, its diversified and sticky customer base, and its constant innovation and expansion into new use cases and channels.

Twilio has a large addressable market of over $79 billion in cloud communications spending, and a clear growth strategy of increasing its adoption and usage among existing customers, acquiring new customers across industries and geographies, launching new products and features, and integrating complementary businesses. Twilio has the potential to become the leading cloud communications platform in the world and grow its revenue and earnings by more than 10x in the next 5 years.

5. Desktop Metal Inc. (DM)

Desktop Metal is a leading provider of 3D printing solutions for metal and composite materials. Desktop Metal has over 300 customers, over 600 systems installed, and over $16 million in revenue in 2022.

Desktop Metal has a market capitalization of $1.6 billion, an EPS of -$0.40, a revenue growth rate of 234%, and a PEG ratio of 0.19. Desktop Metal has a competitive advantage in its proprietary and patented technologies, its broad and versatile product portfolio, its strong and loyal customer base, and its aggressive research and development efforts.

Desktop Metal has a large addressable market of over $146 billion in metal additive manufacturing spending, and a clear growth strategy of expanding its production capacity and capabilities, entering new markets and applications, enhancing its software and cloud services, and acquiring strategic assets. Desktop Metal has the potential to become the leading provider of 3D printing solutions for metal and composite materials in the world and grow its revenue and earnings by more than 10x in the next 5 years.

Investment in 5 stocks

Conclusion

In this blog post, I have shared with you my criteria for selecting undervalued stocks that have high growth potential. I have also revealed the 5 stocks that meet these criteria and explained why they are worth investing in.

These stocks are Shopify, Roku, Upwork, Twilio, and Square. They all have strong competitive advantages, large addressable markets, and clear growth strategies. They also have positive earnings per share, high revenue growth rates, and low price-to-earnings-growth ratios. These factors indicate that they are undervalued relative to their growth potential and can soar in the next 5 years.

If you are looking for some hidden gems in the stock market, you might want to consider adding these stocks to your portfolio. Of course, you should always do your own research and analysis before making any investment decisions.

I hope you found this blog post helpful and informative. If you did, please share it with your friends and followers. And if you have any questions or comments, feel free to leave them below. I would love to hear from you.

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