Many growth stocks that haven’t aligned with Wall Street’s AI fascination this year have been left out of this “bull market,” even with excellent fundamentals. Once smart money starts scanning the market deeper, many such sleeper growth stocks will start a breakout to the upside. Thus, getting in while they are still in the sleeper phase is a great idea.
I would also like to note that sleeper growth stocks usually have substantial upside potential as many of their positive characteristics are not yet priced in by the market. Even better, they also provide a great margin of safety as they trade below their intrinsic value.
We’ll be talking about the following three sleeper growth stocks:
JD.com (NASDAQ:JD) is a Chinese e-commerce company with over 580 million active customers. It is China’s biggest e-commerce company in terms of sales, even bigger than Alibaba (NYSE:BABA). Both businesses are very similar; their growth stories and stock prices reflect that. However, what is different regarding JD.com is that the company seems much more secure from the CCP’s crackdown. The same can’t be said about Alibaba, which Chinese authorities have constantly scrutinized.
JD stock reached a peak in early 2021 and has been on the slide since. But recent price action has turned positive, and the momentum implies that a strong U-turn is underway. The company is definitely trading below its intrinsic value, which Gurufocus considers to be at $92. I agree with that price since JD trades at forward earnings multiple of 12.7 times despite nearly double-digit sales growth projections for the next two years.
Even Wall Street seems very optimistic here. The consensus analyst price target is at $61, implying a 55% upside potential.
Warner Bros Discovery (WBD)
Warner Bros Discovery (NASDAQ:WBD) is another company sitting at quite a depressed level. It is up 33.8% year-to-date, but it’s still nearly 50% below what this merger previously traded at more than a year ago. This decline is not without its reasons, of course. Warner Bros Discovery has a profitability problem, and 12-month losses sit at a staggering $8.9 billion. Based on the quarterly data, these losses have been trimmed from $3.4 billion in Q2 2022 to $1.1 billion in Q1 2023. Quite the improvement.
However, this expenditure also has some good side effects too. Warner Bros has been clearing its debt, and analysts have optimistic projections further down the line. The future 3-5Y revenue growth rate sits at 10.7%, better than 77% of its media peers. But again, bottom-line misses are likely due to Warner Bros Discovery’s aggressive spending on content. It plans to spend $9.5 billion on original content this year.
Regardless, I don’t see Warner Bros Discovery in a cash crunch, and earnings disappointments have mostly been digested. It can also divert some from its massive debt repayment program if it ever needs cash. The stock trades at a forward P/E ratio of 17.8 times. Wall Street analysts recognize that the discount and the average analyst price target imply a 69% upside potential here.
Zoom (NASDAQ:ZM) was well awake during the pandemic era, and the stock traded at nearly $560 in Oct. 2020. However, the pandemic is sliding into distant memory for most people, and so is anything strongly associated with it. Zoom also “came and went,” for most people.
However, that is not entirely true. Not everyone is using Zoom, but there is massive potential here. The stock now trades 30% below even its pre-pandemic peak as Wall Street is busy with more trendy things. But this is a long-term play, and holding it with patience will likely return hefty gains. That’s because the work-from-home trend is still alive. The pandemic did give it a short-term boost followed by a decline, but it is still gaining traction in the very long run. Zoom will be a clear winner from this trend as it is now the first thing that comes to people’s minds regarding video conferencing. The pandemic left this company with a powerful brand and $5.6 billion in cash with meager debt, yet it continues trading at more or less the same level as before the pandemic.
Accordingly, Gurufocus has a very optimistic fair price target of $250 by 2026.
On the date of publication, Omor Ibne Ehsan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.