Do you have $ 5,000? These are 2 of the best growth stocks to buy right now.
If you have $ 5,000 to invest, you are doing better than most. According to a recent survey from personal finance website The Balance, half of Americans have less than $ 250 left at the end of the month. This means that collecting five thousand is a challenge for most.
I’d like to share two growth stock ideas for anyone looking to invest $ 5,000 – or less if that’s out of your reach. The point is, $ 5,000 is a big investment for most people – and should be reserved only for top companies. With this in mind, I believe Pinterest (NYSE: PINS) and Latch (NASDAQ: LTCH) could be basic positions in a diversified portfolio, no matter what that dollar amount looks like in your particular case.
In its most recent quarterly conference call, Facebook CEO Mark Zuckerberg proudly said: “There are now over 3.5 billion people actively using one or more of our services.” With relatively few monthly active Pinterest users (454 million), many investors believed it would have no problem steadily growing its user base over the next decade.
Investors got it wrong, and Pinterest stock is down nearly 40% from its all-time high. In the first quarter of 2021, the site had 98 million monthly active users (MAU) in the United States and 380 million internationally. By the second quarter, those numbers had fallen surprisingly to 91 million and 363 million, respectively.
I don’t want to ignore this drop in user engagement; this is important and it’s up to Pinterest’s management to get things right. However, even though the total MAU was down 5% quarter over quarter, revenue increased 26% over the same period. The reality is that Pinterest revenue can indeed grow at a steady rate even as engagement declines.
Pinterest can do this because of the big advertising shift underway to digital channels from traditional point of sale. Consider what ad tech company CEO Jeff Green The trade office Told CNBC what the pandemic has done for the industry: “We were disproportionately affected in the first month. And we have benefited disproportionately since.”
Advertising budgets are turning more than ever to digital channels. And it doesn’t look like that tailwind for Pinterest’s advertising business is abating anytime soon. The company will continue to increase its revenue because of this. And if Pinterest can start growing its user base again, that will be the icing on the cake. For these reasons and more, now is a great time to buy Pinterest stocks.
Real estate technology company Latch offers homeowners a smart locking device, which allows them to quickly and easily re-enter the door when changing tenants. Additionally, tenants pay a monthly fee to use Latch’s operating system, which allows them to give the apartment access to the right people (like parcel delivery).
I think a ridiculously high valuation and excruciating profit margins lead most investors to mistakenly overlook Latch as an investment. The stock’s valuation relative to the sell price is 71 (hardcore investors in the stock will tell you not to pay above a P / S of 2). And the company’s hardware products currently have a gross profit margin of negative 12%, which means they literally cost more to manufacture than what they sell for.
However, Latch’s P / S ratio doesn’t paint the full picture, as there is a big difference between sales and reservations. Smart locks and other corporate devices are often installed in New multi-family complexes but not before the end of the project. When property owners initially agree to use Latch, they sign a multi-year contract in advance and Latch acknowledges this in bookings. But it is only when the building is actually constructed that Latch can finally recognize it as income.
This means that Latch’s sales naturally lag behind bookings. In the second quarter, the company made just $ 9 million in revenue, pushing the P / S ratio through the stratosphere. But Latch recorded nearly $ 96 million in bookings, up 102% year-on-year and ahead of previous management forecasts. It takes patience for these reservations to finally be recognized in turnover.
When it comes to profit margins, give Latch time to transform. It is true that the company’s equipment is sold at a loss. But once the hardware is installed, Latch generates ongoing recurring revenue from its software, which has a gross margin of over 90%. Currently, software accounts for only 20% of total revenue. But by 2025, software revenue is expected to represent 65% of total revenue, completely transforming the company’s profitability profile.
Latch went public through a Special Purpose Acquisition Company (SPAC), not a traditional Initial Public Offering (IPO). Unlike IPOs, SPACs typically provide multi-year financial projections. I don’t find many of them credible; however, Latch stands out from this crowd by exceeding its reservation forecast so far. This lends credibility to his 2025 outlook. And with his transformation to profitability, he expects to be a cash cow with nearly $ 250 million in annual free cash flow.
With a market cap of $ 2 billion, Latch looks like a boon for long-term investors if it continues on its current trajectory.
Do not overdo it
I think Pinterest and Latch are great companies to own over the next five years, providing both growth and value for today’s investors. And I have personally made these two stocks into core positions in my own portfolio.
That said, there is no magic formula for success in your portfolio. The decline in the number of Pinterest users could accelerate and Latch could start losing customers unexpectedly. It’s important to keep solid investing practices like diversification in mind, even when the long-term opportunities look incredible, as I think they do with Pinterest and Latch.
This article represents the opinion of the author, who may disagree with the âofficialâ recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.