While growth stocks may be far more volatile than defensive stocks, there is often also much higher upside potential. These two US tech stocks have seen a significant amount of volatility over the past few months, but I believe that both have serious upside potential.
Telehealth provider
Teladoc (NYSE: TDOC) saw its share price soar during the pandemic as many people in the US opted for virtual healthcare. Nonetheless, its performance has been far weaker in recent months, and year-to-date, it’s fallen over 20%. This is because investors have started to worry about the company’s post-Covid prospects. But in my view, its current share price of around $150 doesn’t reflect its huge potential.
Indeed, even after Covid, the company is seeing incredible growth. For example, in the most recent Q3 trading update, revenues reached $522m, which was an 81% rise year-on-year. This means that full-year revenues are expected to reach over $2bn. This gives the company a price-to-sales ratio of around 10. While this does not indicate a really cheap valuation, it is undervalued in comparison to many other growth stocks. For instance, Shopify trades on a price-to-sales ratio of around 37, even though its revenue growth is slower than Teladoc’s. Accordingly, if Teladoc keeps growing revenues at the current rate, I feel its share price will be able to rise as well to reflect this.
However, there are risks. For example, in the third quarter it saw a net loss of nearly $85m. While many growth stocks are unprofitable, it is still a risk worth considering. It is also a factor that could prevent the stock from surging in price. If revenue growth slows, the price could also fall heavily.
But I am confident in the future and therefore, Teladoc makes up part of my portfolio. After the company signed recent agreements with CVS Health and Centene, I can also see the revenue growth staying at the same rate. This means that the prospect of the stock soaring seems feasible to me.
A Latin American growth stock
MercadoLibre (NASDAQ: MELI) is the other growth stock I feel could soar in the coming years, especially after its recent dip. This dip has partly been due to worries of supply chain disruption in the e-commerce market, a factor which may strain profits. Nonetheless, while this is certainly a risk, the prospects of this Latin American e-commerce stock look too good to ignore.
In fact, in the company’s Q2 trading update, it recorded revenues of $1.7bn, a year-on-year increase of 102.6%. It also managed to make a small profit of $68.2m, even though the company is prioritising growth over profits. These excellent results were boosted by the company’s fintech segment, Mercado Pago, which now has around 100m unique active users. This offers a new dimension to the company, something I feel will contribute towards larger revenues and profits in the future.
As a market leader in e-commerce in Latin America, which is still fairly unpenetrated, I also feel that the company’s growth prospects are far better than many of its competitors, including Shopify and Amazon. Therefore, if the company continues with its 100% revenue growth, I believe the share price will rise significantly as well. As such, I am tempted to buy more shares.
