You’re not alone if you’re looking for cheap growth stocks to buy before they bounce back. Many investors are searching for bargains in the market, hoping to catch the next big winner before it takes off. But finding these hidden gems is not easy, especially in a market that favors high-flying tech stocks over other promising sectors with very solid fundamentals and long-term growth prospects.
We’ll be looking at seven cheap growth stocks, and snapping them up can lead to substantial gains once Wall Street pivots its attention to stocks that offer both value and growth. Moreover, aside from this high upside potential, cheap growth stocks also come with the added benefit of having little downside risk. Many names continue to trade sideways at depressed levels after the selloffs in 2022, and recovery is only a matter of time for some of these well-established businesses. Let’s dive in!
Cheap Growth Stocks: ChargePoint (CHPT)
The ChargePoint (NYSE:CHPT) stock is among the top cheap growth ideas that I like right now. ChargePoint is one of the world’s largest electric vehicle (EV) charging solutions providers, with over 300,000 charging locations across 31 countries.
The stock is down around 81% from its peak, but the business hasn’t stopped its momentum. Secular tailwinds in the EV industry have driven consistently high sales growth, reaching nearly 60% in the April quarter. These tailwinds have only been accelerating, as proven by the recent delivery reports of companies like Tesla (NASDAQ:TSLA). As more electric vehicles hit the road, the demand for charging infrastructure will increase even more. The total addressable market here could reach $417 billion by 2030, more than 900 times its current annual revenue!
Of course, I wouldn’t ignore that ChargePoint also faces some heavy challenges. The company operates in a highly competitive and fragmented market with competitors such as Blink Charging (NASDAQ:BLNK), EVgo (NASDAQ:EVGO), and Tesla. Plus, cash burn remains high.
Nevertheless, it retains a market share of ~65% in North America. Even if you cut that amount by half in the next ten years, we are looking at substantial upside potential here. Analysts also have a consensus price target of $15.4, 77% higher.
More than 48 million American households have dogs. And Bark (NYSE:BARK) is well-positioned to capitalize on that market. While many might compare Bark to Pets.com, I would argue that times are very different. People go online for everything these days (especially the younger generation), and the trend is only accelerating.
Initially, the company had explosive growth with the pandemic’s tailwinds. This drove up the valuation to over $1.8 billion at its peak. The growth has cooled down substantially since then, and Bark sits at a valuation of 92% lower, with revenue estimated to stay essentially flat from the company’s FY2022-2024. But as we advance, sales growth is projected to pick up in FY2025 to 9.45% YOY growth and accelerate more to 13.4% growth through FY 2026. That should cause substantial appreciation since the price-to-sales ratio here sits at 0.44 times currently.
Accordingly, analysts have a consensus price target of $3.25, implying a 135% upside.
CarParts.com (NASDAQ:PRTS) is another battered-down growth stock with explosive growth during the pandemic. It’s no longer as speedy, but that doesn’t mean it can’t deliver spectacular growth. PRTS stock sits almost 79% from its peak – very compelling at this range. Revenue has still kept on slowly increasing, driving down the P/S ratio to just 0.35 times. This growth slowdown won’t last forever, of course. Revenue growth is projected to reach 12% YOY in 2025.
But what makes me really bullish here is the understated impact of the aging vehicle fleet in the U.S. The average U.S. car has shot past 13 years of age and is likely over 14 years old by the time of writing. Not many people can afford a new vehicle in this environment, let alone the insurance hikes and other hurdles that come along with it. Plus, carjackings and break-ins are rising due to loose law enforcement in many parts of the country, contributing to CarParts.com’s bull case. Thus, there has been a constant increase in car parts sales.
Match Group (MTCH)
Match Group (NASDAQ:MTCH) is the undisputed leader in online dating with a portfolio of popular brands, including Tinder, Hinge, OkCupid, PlentyOfFish, and others. The company has 15.9 million paying subscribers on its platforms and benefits from the network effects and data advantages of its size and reach.
However, Match Group has been under pressure recently due to concerns over falling user growth, which declined by 3% year-over-year, and increased competition. It even faces geopolitical headwinds, as the company had to pull out of Russia. As a result, the stock has fallen more than 75% since its peak in 2021 and trades at a forward price-to-earnings ratio of just 16.4 times, well below its historical average.
Despite this decline, I am very optimistic about MTCH. The online dating market is expected to grow at a compound annual growth rate (CAGR) of 9.2% through 2032, reaching $23.8 billion by then. Match Group has a dominant position in this market with an estimated 60% share in North America, and I believe sales can rise substantially in the coming years. Indeed, this is a great opportunity to buy Match Group at a discount, as the company still has plenty of room to grow its revenue and profit over the long term. Thus, even with the slight decline in financials, analysts are optimistic, with a consensus price target of $54, implying a 28% upside.
Lovesac (NASDAQ:LOVE) is a specialty retailer of innovative home furnishings, including modular sofas, ottomans, pillows, blankets, and accessories. The company has grown rapidly in recent years thanks to its omnichannel strategy. However, the recent sales slowdown is the main culprit behind Lovesac’s valuation plummeting by 71% from its peak. But my optimism comes from the fact that sales growth and profit growth are projected to roar back sharply in the next two years. The company is expected to end 2023 with 9.15% revenue and 18% YOY EPS growth. In 2026, that is expected to accelerate to 16.3% and 59%, respectively. Analysts have a very bullish outlook for this stock too. The consensus price target of $62 implies an eye-watering 137% upside.
If you are looking for something less risky, PayPal (NASDAQ:PYPL) might be your friend. This leading digital payments platform needs no introduction and has been facing severe headwinds in the post-pandemic era. The slowdown of e-commerce and online transactions has caused PayPal’s YOY figures to take a major hit, especially regarding user accounts, which grew just 0.9% YOY in Q1.
Regardless, I have strong hopes of recovery here, thanks to its strong network effects. PayPal’s revenue growth remains very strong, and its strong profits have allowed it to launch an aggressive share buyback campaign. It expects to repurchase $5 billion in shares this year.
Sure, I wouldn’t discount that PayPal operates in a competitive and dynamic industry where it faces pressure from competitors such as Block (NYSE:SQ) and Stripe. However, these cons are all but priced in at their current range. Even if PayPal’s growth keeps crawling for the next year, the valuation here leaves little room for downside. Analysts recognize this, and the lowest price target here is $60. Meanwhile, the consensus price target implies a 33.4% upside from here. Strong buy!
Block is another name among cheap growth stocks that I think are worth buying before it recovers. The argument here is similar to PayPal, and I won’t dive too deep here. But you’re getting higher sales and user growth at the cost of unprofitability and a higher premium. Personally, buying into both PYPL and SQ is a good way to play the fintech rebound. The price targets for both stocks are neck and neck.
Still, I would point out that expectations are very high here. The company trades at a forward P/E ratio of 39x, and investors are pricing in ~15% YOY sales growth for the next two years. I’m confident it can meet those expectations as long as active users keep growing, but it may hit the ceiling in the coming years. Cash App is the fastest segment, which is only available in the U.S. and U.K., and it already has over 53 million users. In contrast, PayPal is available in almost every country and has a lot of room for long-term growth.
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.