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Want 161% to 228% Gains? 2 Cheap Growth Stocks to Buy in 2022, According to Wall Street

In many ways, 2021 was a year like no other, with the stock market providing one such example. Over the course of last year, the S&P 500 gained 26.9% overall, hitting a new record high on 70 separate occasions. That's the most closing highs for the market in more than a quarter of a century. After notching such an impressive performance in 2021, few expect the market to deliver such strong returns in 2022.

That said, some of Wall Street's finest believe there are still big gains out there, and investors can generate market-beating returns by investing in individual growth stocks. With impressive high-water marks according to analysts and investment banks, let's look at two stocks expected to generate returns of as much as 161% to 228% over the coming year.

Image source: Getty Images.

DocuSign: Implied upside of 161%

The trend toward digital signatures, or e-signatures, was already in full swing long before COVID-19 reared its ugly head, though it certainly accelerated their adoption. Now that pandemic-related restrictions are waning, many investors believe the digital signing of documents is on the way out -- but nothing could be further from the truth.

DocuSign (NASDAQ: DOCU) is the industry leader in e-signature technology, with a dominant 70% of the market. Yet a significant opportunity remains, as management estimates that the company's total addressable market (TAM) for digital signatures tops out at $25 billion, which pales in comparison to the $1.5 billion in revenue DocuSign generated in fiscal 2021, which ended Jan. 31, 2021.

While that alone should be enough to make investors bullish on DocuSign, that's just the beginning of the market opportunity, according to CEO Dan Springer. "Typically, e-signature is the first step that many customers take on their broader digital transformation journey with us," Springer said. "So from a financial point of view, we believe this surge in e-signature adoption bodes well for future Agreement Cloud expansion."

The Agreement Cloud is DocuSign's contract lifecycle management (CLM) platform, integrating many of the most widely used software and apps. This ecosystem of solutions was designed to help organizations automate the entire lifecycle of the agreement process. It helps simplify and accelerate document creation, track changes, verify the identity and permissions of the parties to the agreement, and follow through to the final signature and adoption. The system also streamlines the task of renewing existing agreements. Consequently, this massive opportunity doubles DocuSign's market opportunity to $50 billion.

Business is booming. For the first three quarters of fiscal 2022, which ended Oct. 21, 2021, DocuSign's revenue jumped 49% year over year, illustrating that this growth story is far from over. The company also reduced its red ink by 77% as it edged closer to profitability. At the same time, DocuSign generated a free cash flow that more than doubled, which should assure investors that a large portion of its expenses includes non-cash items like depreciation.

While its valuation isn't cheap based on traditional metrics, its price-to-sale ratio recently dropped to a two-year low. Furthermore, Needham analyst Scott Berg maintains a buy rating on DocuSign with a $340 price target, suggesting potential upside for investors of roughly 161% over the coming year.

Image source: Getty Images.

Roku: Implied upside of 228%

Cord-cutting reached epic proportions long before the pandemic. More than 5.1 million subscribers ditched cable last year, with a total of more than 25 million cutting the cord since 2012. Roku (NASDAQ: ROKU) is arguably the company best-positioned to benefit from this trend.

Viewers have several ways to access the company's service-agnostic streaming platform. Roku offers a host of dongles and set-top boxes, but it also licenses its smart TV operating system (OS) to a growing number of television manufacturers. As a result, Roku is the leader in the global streaming market, with a 31.1% market share, eclipsing Amazon's Fire TV at 16.8%, even as Roku expanded its lead last year. That represents more than 56 million active accounts and the treasure trove of viewer data that comes with it.

After adding viewers at a frantic pace, Roku's account growth is taking a breather. That slow-down likely isn't permanent, only stunted by the easing of pandemic-related restrictions and viewers putting down the remote for summer vacations. Roku's international expansion is accelerating, which should help boost account growth.

For the first nine months of 2021, Roku's revenue grew 51% year over year, but that doesn't tell the whole story. Roku sells its devices at or near cost to increase its viewer base. The lion's share of Roku's revenue comes from its platform segment, which includes digital advertising, OS licensing, and The Roku Channel. Revenue from this segment grew 82% year over year, which illustrates the strength of its offerings.

Additionally, Roku's average revenue per user (ARPU) surged 49% year over year in the third quarter, capping off sequential growth going back five years. The company turned profitable in mid-2020 and hasn't looked back.

Roku's valuation isn't cheap using traditional metrics, but it too has seen its price-to-sales ratio dip to a multi-year low. But as the old saying goes, "You get what you pay for." Investment bank D.A. Davidson has a buy rating on Roku stock, with a price target of $550, suggesting potential gains of 228% for investors over the coming year.

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Danny Vena owns DocuSign and Roku. The Motley Fool owns and recommends DocuSign and Roku. The Motley Fool has a disclosure policy.


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