Undervalued growth stocks give investors a greater margin of safety. This margin of safety can help investors ride market corrections and generate significant upside during market rallies.
These undervalued growth stocks are unappreciated and have the potential to generate enticing long-term gains. Some of these stocks have already appreciated significantly over the past five years, but are still enticing. That said, here are some of the top undervalued growth stocks to consider if you want massive returns in 2024.
Undervalued Growth Stocks: Perion (PERI)
Perion (NASDAQ:PERI) is an under-the-radar ad-tech company that is a reliable candidate for double-digit year-over-year revenue and earnings growth every quarter. The company continued that trend with a 17% year-over-year revenue increase in the third quarter. Net income increased by 28% year-over-year. Perion has a 17% profit margin and looks poised to gain more market share. However, the company’s valuation makes it a serious contender for many portfolios. Shares trade at 12x earnings, with a price-to-earnings-growth ratio (PEG) of 0.40.
Shares have gained 13% year-to-date and are up by almost 900% over the past five years. Even with those gains, Perion is a hidden gem that maintains a low valuation despite strengthening financials.
Shares had a 52-week high of $42.75 and currently trade at roughly $28/share. If Perion reclaims its all-time high, it represents a roughly 50% upside from the current price. Perion’s earnings reports and valuation make it highly probable that the stock will be at its all-time high soon.
Axcelis Technologies (ACLS)
Axcelis Technologies (NASDAQ:ACLS) has a story similar to Perion. The small semiconductor player only has a $4 billion market cap and has performed well for long-term investors. Shares are up by 73% year-to-date and have gained 670% over the past five years.
The company only has a 19 P/E ratio and posts exceptional financials. The company reported $292.3 million in the third quarter. It’s a quarter-over-quarter improvement and more importantly a 27.6% year-over-year improvement. Net income jumped by 63.7% year-over-year and helped the company achieve a 22.6% profit margin.
Axcelis Technologies has gained momentum due to rising interest in artificial intelligence tools and stocks. The company’s advanced technology enables effective chip development which is critical for the AI boom. However, shares performed well long before artificial intelligence became more mainstream.
The low P/E ratio combined with solid revenue and earnings growth make this stock an enticing pick to consider. It has the elements of an undervalued growth stock.
Undervalued Growth Stocks: Fortinet (FTNT)
Fortinet (NASDAQ:FTNT) requires a long-term approach for investors to realize gains. Shares started off on a high note until August. The stock sank big-time and is now roughly 35% removed from its all-time high.
It’s been a bumpy ride since August, and things can get worse before they get better. The stock is only up by 6% year-to-date. This year-to-date gain reached 65% back in August before shares went downhill. Even with the disappointing year, Fortinet is still up by 250% over the past five years.
Fortinet disappointed investors with guidance in two consecutive quarters, but the company still posted good financials. Revenue increased by 16.1% year-over-year in the third quarter. Net income soared by 39.4% year-over-year and helped the stock achieve a 24.2% profit margin.
Shares trade at a reasonable 35 P/E ratio, with a forward P/E ratio of 29. Earlier in the year, the company commanded a P/E ratio above 60.
The major concern with Fortinet is a slowdown in billings growth. In the third quarter, billings only grew by 5.7% year-over-year. The company normally reports billings growth that exceeds 30% year-over-year. Declining billings growth means less demand and can result in lower revenue figures later down the road.
Investors shouldn’t be looking for impressive revenue growth in Q4. The number Fortinet gives will likely be lower than the company’s 16.1% revenue growth rate in the third quarter. However, the company is highly profitable and can withstand the challenges. If market conditions improve for Fortinet in the second half of 2024, this stock can rebound in a big way.
Qualcomm (QCOM)
Qualcomm (NASDAQ:QCOM) largely missed out on the artificial intelligence (AI)-fueled rally. Shares are up by 19% year-to-date and that’s only because of a late October surge based on good earnings. Shares currently trade at a 20 P/E ratio and a 13 forward P/E ratio. The stock’s PEG ratio is under one.
Qualcomm has double-digit profit margins but hasn’t posted the best financial numbers lately. It makes sense why the company missed out on the AI boom, as slumping smartphone sales have hurt the company’s business model. Shares went up in October as it appears the slump is easing.
The company experienced declining revenue and earnings in the fourth quarter of fiscal year 2023. Revenue and net income fell by 24% and 48% year-over-year respectively. However, investor sentiment around this stock has become so pessimistic that the company has managed to beat guidance and analysts’ expectations.
Similar to Meta Platforms (NASDAQ:META) in 2022, Qualcomm is underperforming and losing ground. While it may be hard to swallow double-digit revenue and earnings drops, Qualcomm will have an easier time recovering in 2024. It will post better year-over-year revenue and earnings growth which can help the stock stabilize or gain momentum.
Undervalued Growth Stocks: Oracle (ORCL)
Oracle (NYSE:ORCL) shares have more than doubled over the past five years and are up by 38% year-to-date. Cloud computing has been a boon for a business and now accounts for over one-third of the company’s revenue.
Revenue jumped by 9% year-over-year in the first quarter of fiscal year 2024. Cloud revenue was the company’s biggest winner with a 30% year-over-year revenue increase. The company is at the forefront of generative AI. In remarks about first-quarter results, Chairman and CTO Larry Ellison suggested that Generative AI could be “the most important new computer technology ever.”
Oracle is receiving strong demand and accelerated bookings for its Gen2 Cloud. The company has a more efficient cloud that trains AI models twice as quickly while cutting costs by half.
Oracle is positioned to thrive as the demand for artificial intelligence grows. The stock trades at a reasonable 34 P/E ratio and offers a 1.4% dividend yield.
Applied Materials (AMAT)
Applied Materials (NASDAQ:AMAT) has been a top-performing stock with a 330% gain over the past five years. The stock’s year-to-date return currently sits at 58%. While appreciation has been significant, the stock only has a 20 P/E ratio.
Investors even get to enjoy a 0.85% dividend yield from a company that gave investors a big dividend boost this year. The quarterly dividend per share jumped from $0.26 to $0.32 which is a 23.1% year-over-year increase.
While net profits remain above 20%, revenue and earnings growth have decelerated. Revenue and earnings growth both turned negative in the third quarter. The company reported a 1% year-over-year revenue decline and a 2% year-over-year net income decrease.
The company has a more reasonable valuation than its competitors and is positioned to benefit from artificial intelligence. Just like Fortinet, Applied Materials requires a long-term horizon. Profits may not come right away, but the stock can soar quickly when it reverses the trend of decelerating revenue and earnings growth.
Nvidia (NVDA)
Investors can only consider Nvidia (NASDAQ:NVDA) undervalued because of its rapid growth rates and runway. Although the company’s 120 P/E ratio suggests the company is overvalued, a more reasonable 29 forward P/E ratio and 0.98 PEG ratio make it look more reasonable.
When other companies talk about their artificial intelligence initiatives, they often mention partnerships with Nvidia. The company has become the leader of AI chips, and its new chips can lead to more gains.
Nvidia is the leader in the AI trend and has seen its shares more than triple year-to-date. Shares have surged by over 1,100% over the past five years. The company’s revenue and earnings continue to grow at incredible rates. Even if financial growth remains this strong for 1-2 years before stabilizing, shares will end up being a bargain at current prices.
Nvidia is close to reclaiming its all-time high. With 38 analysts giving the stock an average price target of $647.32, it’s only a matter of time before shares exceed their all-time highs.
On this date of publication, Marc Guberti held long positions in PERI, ACLS, FTNT, QCOM, and NVDA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.comPublishing Guidelines.
