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A beaten-down growth stock to buy and one to avoid

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Growth stocks can be far more volatile than income or value stocks. This is because growth prospects can change suddenly, and this can either mean shares soar or decline rapidly. These two US growth stocks have seen their value declining over the past couple of months. In one case, I feel that it offers an ideal opportunity for me to buy. In the other case, I feel that it represents more serious problems, and is a stock I’m avoiding.

The social media giant

Facebook (NASDAQ: FB) has seen its value soar over the past few years, rising 750% from its IPO in 2012. But sentiment has dampened recently, with the stock falling around 16% since the start of September. This has been due to a flurry of bad news including advertising issues and a whistleblower accusing the company of placing profit before people’s safety. This has dampened investor optimism.

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There’s also a risk that this will lead to decreased profits when the company reports its Q3 earnings this evening. Indeed, due to privacy changes introduced by Apple recently, which have allowed iPhone users to opt out of apps tracking their web activity and preventing targeted advertising, there’s the risk that some companies will avoid advertising via Facebook. These new privacy moves contributed to the 26% fall by Snap on Friday, as they hit revenues. This also saw the Facebook share price drop 6% on the day.

But while this risk should be considered, I feel that the benefits of this growth stock are too great to ignore. In fact, the company has managed to grow annual revenue by at least 20% each year, and despite the issues posed by the pandemic, there has been no evidence of this growth slowing down. In fact, in the previous quarter, Facebook reported revenue growth of 56% and an increase of 101% in net income.

Companies are also returning to more advertising, after being slightly subdued during the pandemic. Facebook is seen as a major beneficiary of this, and this could help increase profits even more for the future. As such, I’m very tempted to buy this growth stock.

A growth stock to avoid?

Beyond Meat (NASDAQ: BYND) has several positives, especially that it’s operating in a high-growth market, and it has managed to grow revenues from $32m in 2017 to $407m last year. But there are also several factors that deter me from this growth stock.

For example, on Friday, the shares fell by 14% due to the company cutting Q3 revenue guidance to $106m, down from around $130m. This was due to the large number of coronavirus cases, labour shortages and operational challenges. For me, this demonstrates that the company struggles in the face of headwinds, something I don’t like in a growing company.

Further, I worry about the competition that Beyond Meat faces. This includes Impossible Foods, which has been increasing its retail presence through price cuts for shoppers. Unfortunately for Beyond Meat, this has decreased its market share, and may potentially decrease margins as well. These are worries that are keeping me away from this stock.

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Stuart Blair has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Apple, Beyond Meat, Inc., and Facebook. The Motley Fool UK has recommended the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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