The rally in certain growth stocks is likely starting to reach a plateau, especially with indices starting to rebalance. This is a prime opportunity to invest in under-the-radar growth stocks before Wall Street shifts its focus from AI to other growth opportunities.
As I’ve said multiple times in my previous articles, buying depressed growth stocks is the best idea right now, in my opinion. Such stocks often have little downside risk, and the upside potential is in the triple digits for some of these names. Let’s explore three!
Blackblaze (BLZE)
Kicking off the list is penny stock Backblaze (NASDAQ:BLZE), a cloud storage company that IPO’d in November 2021. Naturally, BLZE stock has tumbled since then, and has been trading in the $5-$8 per share range for over a year. It currently sits at the bottom of this range at $5, and I see substantial upside potential if you enter now.
The company maintains consistent revenue growth of more than 20% year-over-year, and anticipates 17.3% growth by the end of 2023, accelerating to 18.4% in 2024. However, I believe 20% or higher revenue growth is possible this year, as the company has a record of surprising analysts.
The big caveat here is the company’s profitability. Losses have been growing, reaching $17 million in Q1 this year. Indeed, those are substantial losses, compared to the company’s annual revenue of $90 million.
However, analysts expect these losses to be trimmed by a third over the next two years. With $50 million in cash covering around three quarters of losses, the company has runway to weather the storm. Management is targeting adjusted EBITDA breakeven by the end of this year.
As for the stock’s upside, the consensus analyst price target is $11.70, implying 132% upside.
Xponential Fitness (XPOF)
Xponential Fitness (NYSE:XPOF) is another under-the-radar growth stock to consider. Notably, this stock is among the most beaten-down of late, having declined more than 26% over the past month.
This decline is due to a short seller report by Fuzzy Panda Research. The report claimed that the company’s “brands and franchisees are struggling.” XPOF initially fell nearly 50% from its April peak, but rebounded after Evercore ISI Research defended the company, finding little substance in the arguments against its business fundamentals. Many of Fuzzy Panda’s arguments target the CEO, not the business. The company issued a statement last month, refuting some of the financial claims made by Fuzzy Panda.
Still, I would avoid controversy most of the time. However, I believe XPOF stock now presents a no-brainer buying opportunity. It sits just below $20 per share and has been trading at a forward price-to-earnings ratio of 33-times. Analysts predict a premium for 22.4% year-over-year sales growth this year, ~17% growth for two years, and earnings per share to double next year.
Accordingly, the consensus analyst price target implies impressive 87% upside.
ACM Research (ACMR)
ACM Research (NASDAQ:ACMR) is another growth stock providing a compelling buying opportunity. Currently, ACMR stock trades around the same level as in Feb. 2020, even after a triple-digit recovery from its October trough. Currently, this stock trades at a forward price-earnings ratio of just 13-times. I’ll address why it’s so cheap, but let’s look at the company’s top-line growth metrics first.
Revenue growth is expected to come in at 40% this year, and 20% and 15.8% for the next two years, respectively. Additionally, earnings per share growth is expected to stay flat at around 15%. Overall, this growth is relatively healthy. But the reason this stock still trades at such a low earnings multiple is mainly related to geopolitical risks concerning China. The California-based semiconductor company has significant exposure to China, and may face risks in potential U.S.-China crossfire as a result.
Regardless, these risks are already factored in at the company’s current valuation. Thus, the stock is a solid buy in my eyes. Moreover, relations with China are much more relaxed than in 2020, and I don’t think ACM Research will lose this market anytime soon.
The consensus analyst price target suggests 68% upside is possible with this company. I think it can deliver triple-digit returns over a multi-year period.
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On the date of publication, Omor Ibne Ehsan did not have (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.