With the U.S. stock markets hitting new record highs almost every day, the term “cheap growth stocks” might sound like a contradiction. First, growth stocks have rarely been “cheap” over the last decade; and second, after the largely unexpected rally over the last year, broad-market valuations appear somewhat stretched, if anything.
However, I believe SoFi (SOFI) and Tesla (TSLA) are two growth stocks worth buying this February. Both of these stocks offer strong growth prospects over the next decade, and their valuations are also lower than historical averages.
SoFi: A Cheap Growth Stock in the Fintech Industry
SoFi has grown into a financial services powerhouse, and reported a stellar set of numbers in Q4 that set record highs on several metrics. For instance, the company’s revenues, adjusted EBITDA, and net interest margin all hit a record high in the quarter. Its adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) margin was also in line with the long-term target of 30%, and it posted its first profitable quarter on a GAAP basis.
The company’s 2024 guidance was equally impressive, and it expects the combined revenues of the Tech Platform and Financial Services segments to rise by at least 50% YoY. SoFi also predicted that lending revenues would hover between 92% and 95% of 2023 levels.
Management anticipates its adjusted EBITDA margins to rise to 30% by year-end, implying annual adjusted EBITDA between $580 million and $590 million. It also guided for full-year GAAP earnings per share (EPS) between $0.07-$0.08 – which, if achieved, would mark the first full year of GAAP profitability for the company.
SoFi expects its revenues to grow at a CAGR of 20%-25% between 2023 and 2026, with GAAP EPS expected to be between $0.55-$0.80 in 2026. It further expects GAAP EPS to rise between 20%-25% post-2026, as well.
These long-term forecasts should always be taken with a grain of salt, as practically all of the companies that went public through special purpose acquisition company (SPAC) mergers, as SoFi did, are nowhere near the lofty targets they set before their mergers.
That said, SoFi is the exception to the rule here, as the company’s top-line performance has been in line with the numbers it cited ahead of SPAC merger, even as it missed out on the $200 million GAAP profit that it had forecast for 2023.
SoFi Stock Forecast Is Bullish
While Wall Street is not really bullish on SoFi – it has a consensus rating of “Hold” from the 21 analysts covering the stock – I find the stock’s outlook quite positive.
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SoFi has grown its top line without compromising on credit quality and profitability. And at a time when many former growth stocks are finding it tough to report even single-digit growth in revenues, SoFi brings strong double-digit top-line and bottom-line growth to the table.
Finally, with a next 12-month (NTM) price-to-sales multiple of 3.5x, SoFi’s valuation leaves room for further upside if the company can deliver on the kind of EPS growth that it is projecting.
Tesla Stock: It Makes Sense to Buy the Dip
Tesla stock has underperformed the markets in 2024, after more than doubling in 2023. In the short term, the Tesla growth story is looking a bit tarnished after the company warned that its 2024 deliveries “may be notably lower than the growth rate achieved in 2023.”
With the Cybertruck still a long way from mass production, and the new low-cost model yet to be announced, Tesla lacks any real short-term growth drivers. The macro environment hasn’t been favorable either, with the slowdown in China – Tesla’s biggest overseas market – seeming to worsen by the day. Investor sentiment toward EV stocks is also quite tepid, as demand growth is not as strong as most believed it would be.
That said, I believe while Tesla is facing short-term headwinds, its growth should rebound in 2025 and beyond as it launches new models, especially the long-awaited low-cost model. Also, the next round of growth in Tesla could come through autonomous driving and artificial intelligence (AI) products.
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Tesla Stock Looks Cheap at These Levels
Finally, from a valuation perspective, New York University finance professor Ashwath Damodaran valued Tesla at $183.75 earlier this month. In fact, his analysis showed that Tesla and Meta Platforms (META) were among the “least overvalued” among the mega-cap group of “Magnificent 7” stocks. The “dean of valuation” found Nvidia (NVDA) to be the most overvalued among the group, followed by Microsoft (MSFT).
While Tesla shares trade slightly ahead of what Damodaran believes is their fair value, I believe the stock is quite cheap, even as the NTM price-to-earnings (PE) multiple of nearly 63x might not seem to suggest as much – at least, not at first sight.
The recent dip in Tesla looks like a good opportunity to buy the shares, as it still remains one of the most consequential companies of our times, with a presence in multiple exciting industries like electric cars, renewable energy, autonomous driving, robotics, and supercomputers.
On the date of publication, Mohit Oberoi had a position in: TSLA , SOFI , NVDA , META , MSFT . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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