Buying good growth stocks at reasonable prices can help set you up for some tremendous gains later on. It can be a great idea to invest in many of them, since it’s not always obvious which stock may surge in value. Nvidia, for example, was a top tech company a decade ago, but its recent surge, driven by growth opportunities in artificial intelligence, came virtually out of nowhere.
Growth stocks attract investors because they offer the potential for substantial capital appreciation as earnings expand faster than the broader economy. But growth stocks are also more volatile than value or dividend stocks. When sentiment shifts or expectations reset, growth stocks can decline sharply even as their businesses improve.
Three growth stocks that have declined this year—Netflix, Robinhood Markets, and Uber Technologies—illustrate this dynamic perfectly. Despite stock prices falling 10% to 16%, these companies continue generating strong revenue growth, expanding margins, and improving profitability. For investors with conviction in long-term business quality, declines in fundamentally strong companies create buying opportunities.
Understanding Growth Investing
Growth investing focuses on companies whose earnings are expanding faster than the overall economy. If earnings grow 20% annually while GDP grows 2%, the gap between current and future earnings creates potential for substantial stock appreciation.
But growth stocks carry risk. High growth rates are often priced into stock valuations, leaving little room for disappointment. If a company misses growth targets or sentiment turns negative, the stock can decline sharply despite improving fundamentals. Growth investors must be comfortable with volatility in exchange for higher long-term return potential.
The stocks that outperform often diverge from consensus expectations—companies that are better than investors expect or improving faster than forecasts. When market sentiment turns pessimistic on a fundamentally sound business, the divergence between sentiment and reality creates opportunity.
The three growth stocks discussed here all trade well below their 52-week highs despite maintaining strong revenue growth and expanding profitability. For investors believing in long-term expansion narratives and able to tolerate near-term volatility, the combination of depressed stock prices and accelerating businesses creates attractive risk-reward.
Netflix Inc. (NFLX) trades around $78, down 16% this year and down significantly from its $134 52-week high. Shares of the streaming giant are currently at compelling valuations despite the company’s fundamentals remaining robust.
There’s a lot to like about Netflix’s business. The company has raised prices while also offering a lower-priced ad plan to appeal to more price-conscious consumers. This two-tiered approach maximizes revenue from different customer segments—premium subscribers willing to pay for ad-free experiences and price-sensitive viewers accepting ads.
While there may be concerns about its growth rate slowing, the business is still doing well. In its most recent quarter, which ended on March 31, revenue rose by more than 16% to roughly $12.3 billion. The company expects that growth rate to slip to around 13% for the current quarter, but it’s still a solid rate nonetheless.
A 13% revenue growth rate from a $12+ billion quarterly revenue base means Netflix is still adding nearly $1.6 billion in annual revenue. This isn’t rapid growth by startup standards, but it’s impressive for a company the size of Netflix with global market saturation approaching.
Netflix has established itself as a top media company, and its recent attempt to buy Warner Bros. was a clear sign that it isn’t content to just sit idle. This is a growth-oriented business that looks focused on getting bigger and better. With it trading at 25 times its trailing earnings, the valuation appears reasonable for a company growing revenue 13-16% annually while expanding profitability.
The streaming industry has matured from growth phase into consolidation. Netflix’s scale, content library, and international presence create competitive advantages smaller streaming services can’t replicate. The company’s focus on profitability over subscriber growth at any cost demonstrates mature capital allocation.
The downside risk is that subscriber growth stalls or churn accelerates if Netflix’s price increases alienate customers. But the company’s two-tiered model (premium and ad-supported) appears to address this risk by capturing different customer segments.
Robinhood Markets Inc. (HOOD) trades just below $97, down 15% this year from a 52-week high near $154. The popular trading platform faces near-term headwinds from a softening crypto market, but its fundamental growth trajectory remains compelling.
The company’s focus on young retail investors is what makes it an intriguing growth stock to buy. They can potentially remain customers for decades. As these young investors age and accumulate wealth, their trading volumes and account sizes should expand significantly. This creates natural growth tailwinds from customer maturation.
Not only can traders buy and sell stocks through Robinhood, but the company has also expanded into crypto trading, and has been expanding into prediction markets. It has the potential to be the ultimate trading app for retail investors, if it’s not already. This diversification across multiple trading asset classes reduces dependence on any single market.
The growth metrics are impressive. Revenue grew from $1.4 billion in 2022 to $4.6 billion over the past four trailing quarters. This represents a 229% increase in just four years. The company is also profitable, demonstrating that its growth is translating into bottom-line earnings rather than just top-line revenue expansion.
Trading at 46 times trailing profits appears expensive relative to traditional valuation metrics. But for a company growing revenue 40%+ annually with profitability, the valuation captures reasonable expectations for continued growth. The multiple assumes continued expansion but doesn’t reflect speculative excess.
The current weakness reflects short-term headwinds from the softening crypto market. Crypto prices have declined, reducing trading volumes and retail investor activity in digital assets. But this appears cyclical rather than structural—when crypto cycles recover, Robinhood’s crypto trading business should re-accelerate.
Robinhood’s competitive advantages include brand recognition among young investors, network effects (more users attract more trading liquidity), and expanding product offerings beyond stocks and crypto. The company has scale advantages that smaller fintech competitors struggle to match.
Uber Technologies Inc. (UBER) trades around $74, down 10% this year but up approximately 50% over the past five years. Currently trading near its 52-week low of just over $67, the stock offers compelling value relative to business quality.
Uber’s business looks stellar. Revenue last year totaled $52 billion, with more than $10 billion of that flowing to the bottom line. This $10 billion in profits demonstrates that Uber has achieved scale and operational efficiency—the company is no longer burning cash in pursuit of growth.
What’s particularly promising about the business is just how much more growth is ahead. Known for its ride-hailing services, the company’s app could be vital in the growth and rising adoption of robotaxis in the future. As autonomous vehicle technology matures, Uber’s platform positioning it as a leader in robotaxi deployment creates multi-year growth potential.
The robotaxi opportunity is substantial. The ride-hailing market is just the beginning. Autonomous vehicles will eventually replace human drivers, fundamentally changing transportation economics. Uber’s massive installed user base, payment infrastructure, and brand position it well to capture a significant share of the robotaxi market when technology deployment accelerates.
Plus, there are still many opportunities for the business to expand internationally. While Uber operates globally, penetration remains shallow in many developing markets. As smartphone adoption and payment infrastructure improve, Uber’s platform can expand in markets where ride-hailing adoption remains early.
At a price-to-earnings multiple of just 18, this is the cheapest stock among the three growth plays. This valuation is particularly compelling given Uber’s $10 billion annual profit and multiple growth vectors (robotaxis, international expansion, food delivery profitability).
The downside risk is regulatory pressure on gig economy labor practices or robotaxi adoption delays. But Uber’s profitability and expanding international footprint provide cushion against near-term headwinds.
