Growth boosts valuation multiples, but it doesn’t always last forever. Companies that cannot maintain it are often penalized with large declines in market value, a lesson ingrained in investors who lost money in tech stocks during 2022.
Luckily for you, our job at StockStory is to help you avoid short-term fads by pointing you toward high-quality businesses that can generate sustainable long-term growth. That said, here are two growth stocks with significant upside potential and one whose momentum may slow.
One-Year Revenue Growth: +121%
Born from the idea that machines should understand human speech as naturally as people do, SoundHound AI (NASDAQ:SOUN) develops voice recognition and conversational intelligence technology that enables businesses to integrate voice assistants into their products and services.
Why Do We Think Twice About SOUN?
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Sky-high servicing costs result in an inferior gross margin of 39.7% that must be offset through increased usage
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Competitive market means the company must spend more on sales and marketing to stand out even if the return on investment is low
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Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
SoundHound AI’s stock price of $12.72 implies a valuation ratio of 24.4x forward price-to-sales. To fully understand why you should be careful with SOUN, check out our full research report (it’s free for active Edge members).
One-Year Revenue Growth: +16.6%
With a name meaning six in Japanese because it was the founder’s sixth company that he started, Roku (NASDAQ: ROKU) makes hardware players that offer access to various online streaming TV services.
Why Is ROKU on Our Radar?
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Has the opportunity to boost monetization through new features and premium offerings as its total hours streamed have grown by 18.7% annually over the last two years
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Incremental sales over the last three years have been highly profitable as its earnings per share increased by 51.2% annually, topping its revenue gains
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Free cash flow margin increased by 14 percentage points over the last few years, giving the company more capital to invest or return to shareholders
At $100.11 per share, Roku trades at 28x forward EV/EBITDA. Is now the time to initiate a position? See for yourself in our full research report, it’s free for active Edge members.
One-Year Revenue Growth: +21.2%
Founded in 2013 as a champion for content creator rights and free expression, Rumble (NASDAQ:RUM) is a video sharing platform that positions itself as a free speech alternative to mainstream platforms, offering creators more favorable revenue-sharing opportunities.