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2 Growth Stocks Down 79% or More to Buy Now

There's no nice way to dress it up: Growth stocks are getting hammered this year. The Federal Reserve's efforts to restrict the money supply with big interest-rate bumps is a proven method of taming inflation, but it isn't appreciated by Wall Street.

These growth stocks are particularly good buys right now because they're already generating positive cash flow. With positive earnings in the present and the means to earn a great deal more, these stocks aren't as sensitive to rising interest rates as their beaten-down stock prices suggest.

Zoom Video Communications

There are some businesses that won't allow any of their employees to work remotely, but they're a dying breed. For all other businesses that embrace remote work, remote collaboration solutions are crucial and they're flocking to Zoom Video Communications (NASDAQ: ZM). Datanyze recently found more than 160,000 companies are using Zoom's services, which works out to around three-quarters of the existing market for enterprise-level video conferencing solutions.

Zoom Video Communications stock was a big benefactor of stay-at-home policies. It soared during the pandemic's early days but has fallen 79% from its peak, now that most workers have returned to business as usual. This stock probably got too far ahead of itself in 2020, but its recent performance suggests the business is much stronger than you might think after looking at its stock chart.

In the first quarter, total revenue rose 12% year over year to $1.1 billion. This is a snail's pace, compared to Zoom's growth rates a year ago, but simply holding on to big gains made during the hottest moments of the pandemic was going to be a challenge. Investors should look at double-digit growth in the face of tough year-to-year comparisons as a sign of strength.

Instead of Zoom losing enterprise customers -- as you may have expected -- they're sticking around and deepening their relationship with the company. It appears that recently launched solutions, such as Zoom Phone and Zoom Contact Center, are resonating with clients. For its fiscal first quarter ended April 30, Zoom reported a 123% net dollar expansion rate for enterprise-related revenue.


When COVID-related lockdowns kept everyone in their homes, streaming services like Roku (NASDAQ: ROKU) saw a lot of new subscribers. Now that we're more or less back to normal, streaming services are seeing fewer subscribers, and they're spending less time in front of their phones, tablets, and connected televisions (CTVs).

Shares of Roku soared in 2020 and 2021, but the stock has tumbled about 81% from the peak it reached last year. In addition to rising interest rates, the company is combating supply chain issues, which have raised the cost of producing Roku-enabled devices.

Roku's equipment-manufacturing segment is losing a little money, but putting more of the company's devices in front of viewers is worth the investment. Average annual revenue per user soared 34% year over year in the first quarter to $42.91, and advertisers are still learning just how valuable targeted ads can be to their businesses.

Roku devices offer an easy way to access nearly all streaming services as separate channels on their televisions. Roku's own channel is one of its five most popular, and the company has the resources to keep viewers coming back for more. Over the past 12 months, Roku's operation generated $183 million in free cash flow that it can use to bolster content offerings.

As the transition from broadcast and cable television toward video on demand continues, Roku's outstanding performance in recent quarters has a good chance to continue, as well. It might not happen in 2022, but it's just a matter of time before this stock's price accurately reflects the strength of its business.

Find out why Zoom Video Communications is one of the 10 best stocks to buy now

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*Stock Advisor returns as of June 2, 2022

Cory Renauer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Roku and Zoom Video Communications. The Motley Fool has a disclosure policy.


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