The pullback in growth stocks has continued in recent weeks as inflationary pressures refuse to ease. This is adding to fears that interest rates will have to rise significantly, a factor that will increase borrowing costs. Nonetheless, while growth stocks are struggling in the short term, I remain confident in many of their long-term futures. This means that, as a part of a balanced portfolio, I’m continuing to buy them. Here are two I’m particularly keen on.
Latin American e-commerce giant
MercadoLibre (NASDAQ: MELI) released its Q4 results on Tuesday evening, and it offered further evidence of its incredible growth prospects. For example, the company reported net revenues of $2.1bn in the quarter, which was up 73.9% on a currency-neutral basis, and 60.5% in US dollars. This meant that full-year revenues grew to $7bn, over a 75% increase from last year. The company also has a diversified source of revenues, due to both e-commerce and the fintech segment. Fintech performed especially well in the fourth quarter, with revenues rising to $773m, a 70% increase from last year. As banking penetration in Latin America is still quite low, there is certainly room for more growth. These are all very positive signs in growth stocks.
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Despite this, I was slightly disappointed to see a net loss of $46.1m, after being profitable over the past few quarters. This loss was mainly attributable to foreign currency losses — a downside of operating in international markets — and major interest expenses due to the company’s large debt pile. But I’m not overly worried as these seem like short-term problems.
As such, I’ll continue to add MercadoLibre shares to my portfolio, especially as the stock remains below $1,000. This means that it currently trades at a price-to-sales ratio of 7, which is historically low for MercadoLibre and below other growth stocks. For a company with such incredible growth, this seems like a bargain.
Another beaten-down growth stock
SoFi Technologies (NASDAQ: SOFI) is another growth stock that piques my interest. In fact, after reaching highs of around $24 last November, it has since fallen back to just $10. This sell-off now seems overdone for these reasons.
Firstly, the fintech has recently acquired a bank charter, meaning that it will be able to directly lend to customers. This should be a major boost for profitability. Secondly, the bank is growing at incredible rates. Indeed, in the Q3 trading update, it announced that it had 3m members, which was a 96% year-on-year rise.
There are certainly risks with the company, however. For example, despite seeing slower revenue growth than MercadoLibre, it trades at a P/S ratio of 8. This may signal that there is further to fall. Further, I was slightly concerned at its recent acquisition of Technisys in an all-share deal worth $1.1bn. Although it is expected that this will create around $80m in cost savings between 2023 and 2025, I was disappointed to see the share dilution and would have preferred the company to use some debt in the deal. I also feel that the deal may have been slightly expensive.
Even so, I have faith in CEO Anthony Noto and think that SoFi can be a real competitor in the fintech space. Therefore, I may add more SoFi shares to my portfolio at its current price.