Unlocking Hidden Gems: Two Growth Stocks Poised for a Breakout
The S&P 500’s impressive 25% gain in 2024 may have overshadowed some exceptional growth stories. Despite their underlying businesses thriving, certain stocks have flown under the radar. Let’s uncover two overlooked gems that could be on the cusp of a significant upswing.
Roku: A Digital Media Powerhouse
Roku’s stock price may have taken a hit, but its growth trajectory remains intact. The company continues to expand its user base at a double-digit rate, with a 13% year-over-year increase in streaming households to over 85 million in Q3. Moreover, users are engaging with the platform more than ever, with total streaming hours up 20% to 32 billion. This impressive growth has attracted advertisers, driving platform revenue up 15% year over year to $908 million.
The real catalyst for Roku’s potential upside lies in its improving margins. The company’s gross profit margin has jumped from 48.1% in Q3 2023 to 54.2% in Q3 2024, with management identifying opportunities to further monetize its home screen, create new revenue streams through partnerships, and grow subscription-based revenue.
DraftKings: A Sports Betting Powerhouse
Online sports betting is a burgeoning megatrend, projected to reach $24 billion by 2029. DraftKings is well-positioned to capitalize on this growth, with revenue surging 39% year over year to nearly $1.1 billion in Q3. Despite underperforming in 2024, the stock now offers better value than a year ago, trading at just over 4 times trailing-12-month revenue.
Improving profitability is a key catalyst for DraftKings’ potential upside. Management expects free cash flow to reach roughly $850 million in 2025, indicating significant margin expansion potential. The legalization of online sports betting in additional states, such as Texas and California, could provide a long-term tailwind for the company.
Seizing Opportunities in Growth Stocks
Both Roku and DraftKings offer compelling growth prospects, driven by their strong underlying businesses and improving fundamentals. While the market may have overlooked these stocks in 2024, they could be poised for a breakout in the new year. By adding these gems to a well-diversified growth portfolio, investors may be able to tap into market-beating returns over the long term.
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