The 7 Most Undervalued Growth Stocks to Buy in January
Searching for undervalued growth stocks takes a bit of extra work, especially in a market that saw many of them surge in the previous year. However, investors who dig for these stocks and remain invested in the long run can outperform the market.
While it’s possible to find undervalued growth stocks within big tech, it’s harder to do so since everyone knows those stocks. Investors who look for smaller companies with less fanfare have the potential to discover undervalued stocks before they become mainstream.
Investors looking to diversify their portfolios with undervalued growth stocks may want to consider these picks.
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Perion (PERI)
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Perion (NASDAQ:PERI) is a small adtech company that operates in several high-growth verticals, such as connected TV and digital out-of-home advertising. Although shares have been flat over the past year, the stock has gained more than 800% over the past five years.
Perion investors benefit from strong financial growth and a low valuation that’s hard to find in the industry. Shares trade at a 9 forward P/E ratio and a 0.42 PEG ratio. Investors may expect a low forward P/E ratio from a mature or declining business, but Perion is still growing at a fast pace.
Perion achieved 17% year-over-year revenue growth while increasing its net profit margin to 17.7%. The firm posted guidance that suggests 16% year-over-year revenue growth to close out 2023.
Perion doesn’t deserve to trade at a 100 P/E ratio, but its current valuation is too low given the company’s growth prospects. The company has an average price target of $36.75 among four analysts. That price target implies a 27% upside from the current price.
Celsius Holdings (CELH)
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Celsius Holdings (NASDAQ:CELH) doesn’t look undervalued at first glance. A 60-forward P/E ratio leaves much to be desired for a value investor. However, the sports beverage company has consistently posted exceptional revenue and earnings growth.
Revenue and earnings both more than doubled year-over-year in the third quarter of 2023. Investors have become used to this type of growth.
The drink caters to consumers who are more conscious about their health. The drink has no sugar, high fructose corn syrup, artificial colors, or aspartame. Drinks contain seven essential vitamins, accelerate metabolism, and burn body fats and calories. The company has positioned itself as a leading alternative to conventional energy drinks.
The most exciting thing for shareholders is the company’s vast opportunity in international markets. Celsius Holdings can still expand in North America where it has more than doubled its revenue year-over-year.
The key detail is that North American revenue made up $371 million of the company’s $385 million in total revenue. That means only $14 million came from outside of North America. Celsius can quickly penetrate global markets once it gains enough momentum. That prospect and the company’s financial performance make the stock look like a bargain.
PayPal (PYPL)
PayPal (NASDAQ:PYPL) hasn’t been the best stock in recent years. Shares are down by 23% over the past year and have dropped by 33% over the past five years. A pandemic-induced boom saw the stock briefly eclipse $300/share before crashing to current levels.
Investors may want to consider how much more this stock can possibly fall. PayPal is a globally recognized brand that trades at an 11 forward P/E ratio and a 0.52 PEG ratio. Those numbers suggest the stock is undervalued at current levels.
The company’s new leadership can result in higher revenue in the future. It’s amazing to think shares almost fell below $50 apiece, but the current value still feels like a bargain. PayPal isn’t the type of stock that beats the market, but it presents an enticing margin of safety at current levels.
Axcelis (ACLS)
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Axcelis (NASDAQ:ACLS) is a key player in the semiconductor industry. The firm produces wafers that are an important part of the chipmaking process. As the demand for chips rises due to artificial intelligence and other factors, Axcelis stands to benefit.
The company’s financials support that assertion. Axcelis beat third-quarter earnings and estimates. The company surpassed the consensus EPS for each of the past four quarters. Axcelis had to generate 27.6% year-over-year revenue growth and 63.7% year-over-year net income growth to beat estimates. A large backlog suggests growth will continue. All in all, it’s one of those undervalued growth stocks to buy.
While Axcelis’ financials demonstrate a company in growth mode, the stock price shows a company in decline. Shares are more than 40% removed from their all-time high. The stock now trades at a 16 P/E ratio which represents a bargain.
The stock seems likely to reach its all-time high in 2024 or 2025 if revenue and earnings grow at the same rates. The sudden drop in stock price wasn’t accompanied by any significant, company-specific news.
Adobe (ADBE)
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Adobe (NASDAQ:ADBE) is a well-diversified software company that offers tools for content creators, small businesses, and corporations. Shares trade at a 33-forward P/E ratio and have gained 73% over the past year. The stock is up by 141% over the past five years.
Adobe posted 12% year-over-year revenue growth to close out fiscal 2023. The company’s revenue for the quarter came to $5.05 billion. Revenue growth is likely to continue into 2024 since the firm has $17.22 billion remaining performance obligations.
Adobe has a suite of software but is optimistic about its newest release, Adobe Firefly. This tool lets users create pictures with artificial intelligence. Each product Adobe releases brings more attention to its existing solutions. Some businesses and content creators sign up for multiple software solutions that Adobe offers, resulting in higher annual recurring revenue in the process.
While Adobe’s double-digit revenue is already starting on good footing, the company also posted 26% year-over-year net income growth. The elevated net income growth will result in a lower P/E ratio moving forward.
Arista Networks (ANET)
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Arista Networks (NYSE:ANET) is a cloud computing company with over 8,000 customers worldwide. The firm helps customers keep their information safe and improve efficiency.
Arista Networks has consistently delivered strong financial results for shareholders and continued that trend in the third quarter of 2023.
During that quarter, revenue increased by 28.3% year-over-year to reach 1.509 billion. GAAP net income reached $545.3 million which was a 54% year-over-year increase. This growth resulted in a 36% net profit margin.
Arista Networks’ financials have supported a boom in the stock price. Shares have more than doubled over the past year and are up by 333% over the past five years. Despite the long-term rally, the stock only trades at a 34-forward P/E ratio.
Artificial intelligence is helping the company hit new revenue milestones and attract more customers. Jayshree Ullal, President and CEO of Arista Networks, mentioned that “customer momentum remained strong in both enterprise and cloud/AI sectors.”
The company seems poised to reward long-term shareholders. The valuation looks good now, but it’s even better for investors who can wait for a few years.
Akamai Technologies (AKAM)
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Akamai Technologies (NASDAQ:AKAM) works behind the scenes to keep people and businesses safe in the digital world. The company offers content delivery networks, cybersecurity features, cloud services, and other resources designed for protection.
The firm has a reasonable valuation and growth prospects for new investors. Shares trade at a 17-forward P/E ratio and have gained 32% over the past year. The stock is up by 78% over the past five years.
Akamai Technologies posted 9% year-over-year growth in the third quarter of 2023. AKAM isn’t a high-flying growth stock but it offers growth at a reasonable price. Revenue growth is likely to accelerate in the future. The company makes most of its revenue from Security, a segment that has experienced 20% year-over-year revenue growth. Compute revenue also performed well and was up by 19% year-over-year.
The only laggard in the company’s business is Delivery revenue which dropped by 4% year-over-year. Delivery revenue makes up 39% of the company’s total revenue, and its total drag on revenue gets smaller each year.
As Service and Compute continue to grow, Akamai Technologies should post double-digit year-over-year revenue growth in the future instead of the 9% growth rate from the third quarter. This make it one of those undervalued growth stocks to consider.
On this date of publication, Marc Guberti held long positions in PERI, CELH, ACLS, and ANET. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.comPublishing Guidelines.
Marc Guberti is a finance freelance writer at InvestorPlace.com who hosts the Breakthrough Success Podcast. He has contributed to several publications, including the U.S. News & World Report, Benzinga, and Joy Wallet.
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