The returns can be massive when you can scoop up shares on the cheap before the rest of the market catches on. Of course, separating the wheat from the chaff is easier said than done.
With endless cheap stocks available, many are fragile companies that still have further to fall. The key is finding the diamonds in the rough. In fact, some rock-solid businesses are poised for tremendous growth.
Short-term profit swings often make a great business look deceptively expensive using simple trailing metrics like the price-to-earnings (P/E) ratio. At the same time, battered and bruised share prices often misrepresent a company’s bright future outlook.
Thus, looking deeper into long-term numbers can help you unearth prime value opportunities before others. Let’s examine three such stocks to buy.
StoneCo (STNE)
I’ve been pounding the table on StoneCo (NASDAQ:STNE) for a while now. I still believe this Brazilian fintech has an explosive upside ahead in 2024. As one of Brazil’s leading payment processors, StoneCo is perfectly positioned to ride the digital commerce and transactions wave. E-commerce and emerging middle-class consumers continue growing by leaps and bounds.
While the stock has surged over 80% off its October lows, value hunters believe there’s more room to run. After all, forward P/E and P/S ratios sit at bargain basement levels below 20x and 2.2x, respectively. This is extraordinarily cheap for a high-growth disruptor expanding its share in an underserved market. Already, StoneCo has delivered scintillating growth. Its revenue jumped 25%, and net income doubled last quarter, with EPS skyrocketing 153%.
Yet, the market focuses on rising provisions for bad debt instead of the vastly more important surge in processed volumes. As Brazil’s economy rebounds amid easing inflation, provisions may stabilize even as processed volumes march higher. And, with margins already recovering, profit growth should accelerate further.
In short, STNE offers a wildly underappreciated growth story that value and growth investors alike can sink their teeth into.
Travelzoo (TZOO)
While post-pandemic travel boom loses steam, the correction has opened up select opportunities like Travelzoo (NASDAQ:TZOO) at attractive valuations. Record rates and recessionary fears have dampened leisure and tourism spending. However, Travelzoo may experience much upside ahead as it executes strongly, even amidst market turbulence.
Further, shares are surging 90% off October lows yet still 50% below 2021 highs. Travelzoo offers asymmetric risk-reward as markets stabilize in 2024. Already, the company is delivering. For example, TZOO beat EPS estimates by 78% last quarter on 11% higher revenue versus projections.
Critically, Travelzoo continues growing its membership base and subscriber engagement through targeted lifestyle offers and exclusive high-end deals. Clearly, the business is resonating with its core demographic. As macro headwinds abate and consumers shake off recession anxiety next year, engagement may translate into booking momentum.
Its risk-reward appears skewed strongly to the upside. Shares trade at just 7.7x 2025 EPS estimates. But, once tailwinds emerge, the floodgates should open for substantial multiple expansion and share price gains.
Upwork (UPWK)
As a long-term believer in the freelance/gig economy, I’ve kept my eye firmly fixed on Upwork (NASDAQ:UPWK) for some time now. No doubt, the stock has endured a miserable 2022 after getting way ahead of itself last year. But, a sustained recovery may unfold in 2024.
True, Upwork faces near-term uncertainty as businesses trim hiring budgets amidst inflation/recession fears. But the freelance trend is here to stay. Companies recognize the value of on-demand specialized talent and flexible staffing solutions, especially in the digital arena.
Looking ahead, analysts forecast Upwork’s top line growing by nearly 13% annually through 2027, with EPS tripling over the next three years. So, UPWK trades at just 10.5x its 2027 earnings estimates. Considering the huge total addressable market (TAM) and secular digital freelancing tailwinds, I believe this discounts tremendous upside potential.
On the date of publication, Omor Ibne Ehsan 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.