Growth stocks have been huge winners over the past 18 months. Investors have shrugged off the sector’s 2022 bust and returned to growth and technology names with great enthusiasm.
This move makes sense. The Federal Reserve’s planned rate cuts for later this year could be a major catalyst for the growth names in particular. And the rapid increase in activity in fields such as artificial intelligence and semiconductors has been a strong tailwind as well.
However, not all growth stocks have taken part in this sector rally. In fact, in recent weeks, a fair number of technology and growth stocks have tumbled to new 52-week lows. While most of these companies are flawed, some quality names have gotten tossed aside with the bunch. These are three of the best growth stocks to buy at their 52-week lows.
Endava (DAVA)
Endava (NYSE:DAVA) is a leading offshoring IT consultant. The idea is that Endava hires skilled IT workers in emerging market countries such as Poland, Colombia, and Vietnam. In turn, it uses this workforce to complete IT projects and contracts for Fortune 500 companies and capture a sizable profit margin in the process.
Endava has been incredibly successful, tripling revenues and increasing profitability dramatically in recent years. Until recently, Endava was enjoying outsized growth as firms rushed to beef up their IT capabilities to handle increasing e-commerce, remote work, and digital services demand.
This trend has now reversed. Several key Endava clients have slowed their spending over the past year to adjust to more challenging macroeconomic conditions. In addition, some investors worry that AI will reduce the need for in-house IT solutions.
I believe these fears — particularly around AI — are misguided. While companies will implement AI to harvest some low-hanging efficiency gains, there’s less evidence that AI is at the point of replacing programmers or full tech stacks anytime soon. If anything, Endava appears likely to be an AI winner, as it helps its large and sometimes stodgy clients implement the latest solutions in cloud computing, data science, and generative AI.
Chewy (CHWY)
Chewy (NYSE:CHWY) is a specialty e-commerce company focused on pet food, pet health supplies, and related products.
Founded in 2011 by famed investor Ryan Cohen, Chewy was created to develop a leading e-commerce ecosystem for pet owners. Originally, the company enjoyed rapid growth as customers took to the concept. The pandemic gave Chewy more momentum as people adopted pets at a record clip and spent lavishly on them.
Since then, Chewy has been sent to the doghouse. As the company’s growth has stalled, the firm has struggled to remain profitable, at least on a GAAP basis.
However, analysts see things picking back up. The current earnings consensus has Chewy returning to solid revenue growth going forward while shares trade at around 20 times projected this year’s non-GAAP earnings. There was a real slowdown in the pet space as the economy opened back up, but CHWY stock overreacted to that, setting up a compelling bargain heading into this summer.
Evotec (EVO)
Evotec (NASDAQ:EVO) is a German life sciences company. It is focused on drug discovery; specifically, it helps biotech and pharma firms with the development of new clinical products and therapies. Evotec has partnerships with many of the world’s leading pharmaceutical companies and Evotec is involved in research and development on a pipeline of drug candidates which cover a wide range of diseases and clinical targets.
There are various contract research organizations (CROs) out there. Evotec’s unique innovation is that it runs a dual-revenue approach. Namely, it generally aims to acquire a small royalty stream off of the drugs on which it does clinical work. While it has to give up some upfront revenue to facilitate these deals, these long-lasting royalty streams should give Evotec a unique portfolio of revenues from FDA-approved drugs over time.
Evotec has already proven that its hybrid revenue model works. It has increased revenues from $501 million in 2019 to an estimated $935 million for this year.
Shares recently plummeted on a weaker-than-expected earnings report. However, the company is still anticipating double-digit top line and EBITDA growth this year. If the company hits those metrics, EVO stock will look like a steal at its currently depressed valuation.
On the date of publication, Ian Bezek held a long position in EVO and DAVA stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
