Two Growth Stocks Gearing Up for a Prosperous Surge in 2025
Revamped Article:
The S&P 500 took a stride forward in 2024, notching up a 25% surge. Yet, some blue-chip growth stocks struggled to keep up, even as underlying businesses thrived. In the coming year, let's uncover two overlooked stocks that Wall Street seems to have missed, but could potentially surge ahead:
1. Roku
Roku Inc. (ROKU) saw its stock prices plummet over the past three years. Despite this, it nonetheless boasts an impressive doubling of household consumer growth. Management has also shifted its focus to enhancing profit margins, making this a great time to buy in at these discounted prices.
Why the hype, you ask? Consumers have been ditching legacy TV services in favor of digital platforms. This consumer shift drives consistent revenue growth for Roku. Streaming households, streaming hours, and revenue all grow at double-digit rates for the company.
The economic slowdown didn't slow Roku's growth, either. Its ad-supported platform continued to captivate viewers, with streaming households growing 13%. Total streaming hours also jumped an astounding 20% during Q3, with average users clocking more than four hours daily of entertainment.
Advertisers are lured by this high user engagement. As a result, platform revenue, which includes advertising and premium subscriptions, experienced a 15% year-over-year increase during Q3, amounting to $908 million.
But the real catalyst for higher stock prices lies in improving profit margins. Gross profit margin jumped from 48.1% in Q3 2023 to 54.2% in Q3 2024. Roku possesses ample levers to drive further margin improvements, such as monetizing its home screen with new features, forming strategic partnerships, and boosting the number of billable subscriptions through Roku Pay.
2. DraftKings
Online sports betting has emerged as a compelling trend with favorable prospects for investors with a long-term outlook. According to Statista, the market is expected to reach $24 billion in 2029. DraftKings (DKNG) is well-positioned to take advantage of this growth opportunity.
DraftKings' share price struggled in 2022 along with the broader market, but its stock soared back over the last two years. In Q3, revenue grew an impressive 39% year-over-year to $1.1 billion.
Investors are attracted to DraftKings' outlook for revenue growth. Management is aiming for a 31% increase in revenue in 2025. The stock might seem overpriced, but when considering its P/S ratio of just over 4, it presents better value than in previous years.
The catalyst for the stock's improvement lies in DraftKings' improving profitability. Management projects its free cash flow to reach approximately $850 million in 2025, indicating a long-term upward trend in margins.
Sports betting isn't yet legal in every state, but Texas and California, two of the most populous countries, are likely to join the ranks shortly. This emerging trend could yield market-beating returns over the coming five years and beyond, making this a perfect time to add DraftKings to your portfolio for a fresh revenue stream.
Investing in Roku could be a smart move, given its impressive growth despite an economic slowdown. The company's focus on boosting profit margins, coupled with the increasing shift towards digital platforms, makes it an attractive option for potential investors looking for long-term gains.
With the online sports betting market expected to reach $24 billion by 2029, DraftKings is well-positioned to capitalize on this trend. Its revenue growth and improving profitability, along with the impending legalization of sports betting in major markets like Texas and California, make it an exciting investment opportunity in the field of finance.
