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In the dynamic world of investing, growth investing emerges as a compelling strategy for long-term wealth creation. Growth investing focuses on identifying companies with strong earnings potential and promising prospects for expansion. It revolves around selecting growth stocks, which are shares of companies that demonstrate above-average growth rates in revenue, earnings, or both.
This strategy is particularly beneficial in the stock market due to its volatility. While market fluctuations can be unsettling for some investors, growth investing thrives on such volatility, providing opportunities to invest in companies poised for exponential growth. Investing in growth stocks can outperform the overall market, even during periods of economic slowdown.
These stocks often gain momentum and attract investors seeking high returns. Identifying the right growth stocks requires careful analysis, considering factors such as industry trends, competitive advantages, and management expertise. When executed diligently, growth investing has the potential to generate substantial long-term wealth and deliver gratifying returns to investors. This article highlights the top 5 growth stocks for 2023 to assist investors.
Growth Stocks To Buy in 2023
With a proprietary e-commerce platform for online stores and retail point-of-sale systems, Shopify is a large-cap multinational e-commerce company headquartered in Canada. The recent first-quarter 2023 performance by the company was excellent. Shopify stunned the market by growing its gross merchandise value (GMV) by 15% to $49.6 billion and revenue by 25% to $1.5 billion in 2023, even though in the previous year, its estimate for growth in GMV and revenue for 2023 was worse than in 2022. Additionally, it produced a free cash flow of $86 million, a significant improvement over the $41 million in negative free cash flow produced in the prior period.
In particular, Shopify’s decision to sell off its Fulfilment Network and the recently acquired logistics company Deliverr to Flexport is a welcome move as it will allow the company to concentrate more on developing cutting-edge commerce software and solutions for merchants and, ultimately, improve its margins in the long run by growing its market share in the US and global retail industry.
Shopify plans to produce positive free cash flow each quarter of 2023 and anticipates similar revenue growth in the second quarter of 2023. Its stock’s valuation has significantly decreased, and right now, it seems like an excellent bargain before it starts to rise again.
Block is one of the fastest-growing American global technology companies that offers reporting, analytics, and next-day settlement and lets merchants take card payments. The downturn in the economy had severely impacted the stock’s growth. As a result of the significant decline in the cryptocurrency market, its top line was affected by lower bitcoin-based revenue. Also, its stock price was affected by a short seller report that targeted Block.
However, Block’s performance in the first quarter of 2023 significantly improved, exceeding expectations. The company’s sales increased by 26% yearly to $4.99 billion despite macro pressure from rates, while the gross profit increased by 32% due to Block’s cost-cutting actions. Even though the Fed has taken steps to curb activity, the transaction income and volume growth show that the economy is still strong. Nevertheless, despite a significant revenue increase, the Block still needs to be more profitable due to rising running costs.
Block has revised its outlook from $1.30 billion to $1.36 billion for adjusted EBITDA in FY 2023 and is ahead of the consensus estimate of $1.32 billion. The company is trading for 50 times its earnings, which is high but still considerably less than the price at which the stock has traded during the peaks of 2021 and 2022. As a result, it is a fantastic deal at this price point.
Pinterest is an American social media platform that enables users to discover ideas, including recipes, home and fashion inspiration, and more. Like many other ad-driven businesses, the company experienced short-term demand issues but established long-lasting competitive advantages that boosted its prospects.
Pinterest’s monthly active user (MAU) count increased during the Pandemic but quickly declined after vaccines were made accessible. However, looking back five years, it is clear that the site has been attracting many users. Despite the extraordinarily challenging domestic and international advertising environment, it also had a 10% gain in the global average revenue per user (ARPU) last year.
This year, Pinterest’s first-quarter revenue increased 5% to $603 million, and MAUs rose 7% to 463 million. The key reason for the net loss’s significant inflation was restructuring costs. The company anticipates Q2 revenue will increase in Q4 2022 and Q1 2023. Additionally, growth in operating expenses is expected as well.
The platform provided by Pinterest is ideal for influencing users to make purchases without their knowledge. Therefore, investors who know their stuff can acquire it now to benefit from this buying opportunity.
Digital streaming, cloud computing, online advertising, and artificial intelligence are just a few industries in which Amazon, a US-based multinational technology giant, operates. With more than 200 million global Prime members, the company is well-known in e-commerce. Of particular note, it currently controls 40% of the whole US e-commerce sector. Its stock has mostly stayed the same year over year, despite having such solid fundamentals and market dominance.
Due to the broader economic issues in the previous year, Amazon’s e-commerce segments generated a loss of $10.6 billion. But its first-quarter 2023 results are very encouraging. Amazon claimed a 2.5% profit margin and a 9.4% increase in overall revenue. The company’s North American division returned to profitability, posting an operating income of $0.9 billion, and its international division also saw slight increases. Amazon anticipates net revenues between $127 billion and $133 billion and operating costs between $2.0 billion and $5.5 billion for the second quarter.
It is a fantastic opportunity to purchase this blue-chip stock at a discounted price given that the e-commerce sector is expected to reach $4 trillion this year and $6 trillion by 2027 and that Amazon’s cloud platform, Amazon Web Services (AWS), has enormous potential as inflation eases.
Tesla is a big name in the automotive and clean energy sectors that develops and produces electric cars, battery energy storage systems for homes and grids, solar panels, solar roof tiles, and other related goods and services. The company presently holds 50% of the US EV market share and 20% of battery electric vehicle sales in Europe, thanks to the first mover advantage. Notably, it has resisted rivals’ attempts over the years.
Tesla produced and delivered 422,000 vehicles in the first quarter of 2023, up 44% and 35% from last year, demonstrating that it has all the necessary infrastructure to fulfill the rising demand for EVs. Accordingly, the company’s quarterly sales increased 18% to $19.9 billion. In contrast to its competitors, which are often very unprofitable, Tesla responds to inflationary pressure by lowering the pricing of some of its vehicles.
With the expectation of producing around 1.8 million vehicles during the year, Tesla intends to continue exceeding the long-term 50% CAGR target it set in the early part of 2021. It also believes it will continue to have one of the most significant operating margins in the sector.
Ultimately, the key to successful growth investing is to take a long-term perspective and build a diversified portfolio. By carefully analyzing valuations, market capitalization, and earnings per share, investors can identify growth stocks that have the potential to deliver strong total returns over time. And by reinvesting dividends, investors can use compounding to help build a strong dividend growth portfolio that can withstand market volatility.
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