The Nasdaq recently slid below 16,000 points again after reaching a fresh high. This pullback was largely due to the hotter-than-expected inflation report, which points to the Federal Reserve maintaining high interest rates for a few more months, possibly even beyond Q2 if inflation persists. Elevated rates and bearish sentiment spell trouble for growth stocks broadly. However, for investors targeting under-the-radar growth names, the Fed’s prolonged hawkishness may not matter much.
Many businesses have fully rebounded from the pandemic but remain overlooked by Wall Street’s laser focus on mega-cap tech. These stealth growers likely won’t tumble far from current levels, making now an opportune time to buy before the crowd catches on. Let’s explore seven such little-known growth stocks with multibagger upside.
Magnite (MGNI)
Magnite (NASDAQ:MGNI) provides a leading independent sell-side advertising platform that offers a technology solution to automate the purchase and sale of digital advertising inventory. I believe Magnite has robust upside potential that the market has yet to fully appreciate.
Digital advertising spending has been rising as companies ramp up their ad budgets across the board. This secular tailwind can benefit Magnite over the long term. The stock has plunged 82% from its euphoric peak in 2021, this leads me to think much of the froth has come out. I see Magnite poised for significant gains from current levels as its financials continue improving. Consensus estimates call for revenue to climb at a double-digit pace annually, along with EPS expanding from 78 cents in 2024 to $1.13 in 2026. At just 14 times forward earnings, the valuation looks enticing for a software company with Magnite’s growth prospects.
A key competitive advantage lies in Magnite’s partnerships with many of the largest players in the industry. That includes Roku (NASDAQ:ROKU), Warner Bros Discovery (NASDAQ:WBD), Paramount (NASDAQ:PARA), Disney (NYSE:DIS), Fox (NASDAQ:FOX), Samsung (OTCMKTS:SSNLF), LG (OTCMKTS:LGEIY), and Vizio (NYSE:VZIO). These established partners can provide sticky and recurring revenue sources for years ahead. However, I would note the CEO recently sold $840,750 worth of stock. While insider selling merits caution, the last earnings report was less than a month ago, so I don’t think the sale signals any imminent misses. Magnite beat both top and bottom-line estimates in Q4 by over 3%.
With digital ad spending still in its infancy and Magnite cementing its positioning as a neutral middleman between buyers and sellers, I remain upbeat on its long-term growth narrative. The stock looks attractively priced today for investors willing to embrace some volatility along the way.
Xos (XOS)
Xos (NASDAQ:XOS) is a California-based electric vehicle company selling electric trucks and powertrains. I’ll admit EV startups give me the jitters, as many have been burning copious amounts of cash amid cutthroat competition with giants like Tesla (NASDAQ:TSLA). However, Xos seems better positioned than some peers. Its future looks increasingly bright from what I can glean.
Consensus forecasts call for revenue to climb from $44 million in 2023 to almost $500 million in 2025. EPS is expected to reach near breakeven levels by 2025. Losses stood at $14 million last quarter – a very small amount compared to the triple-digit net margin losses common among other EV startups. The stock also hasn’t suffered the dilution other peers have faced. It has traded sideways for about a year, while most other EV players lost half their value in just the past few months. Thus, I believe Xos may be bottoming.
The fact that Xos isn’t trying to compete head-on with Tesla’s Cybertruck or Ford (NYSE:F) positions it smartly. It focuses on commercial fleets and has several high-profile partnerships, including with UPS (NYSE:UPS). As more companies and municipalities electrify their fleets, Xos could see surging demand. Trading at just 1.7x forward sales, the risk-reward looks favorable in my eyes for investors betting on this niche EV play.
Ring Energy (REI)
I see a compelling upside in Ring Energy (NYSEMKT:REI) as a growth-focused oil explorer. The company focuses on acquiring and developing prime oil and gas assets in the hydrocarbon-rich Permian Basin. While the stock has declined from around $5 last May to $1.86 now, I expect an imminent turnaround. In fact, Ring may retest those old highs within months, if not sooner.
With global energy markets still tight, American oil and gas is essential – especially for Europe, parts of Asia, and domestically. I’m also encouraged (not politically – I promise I’m neutral!) by polls showing Donald Trump well-positioned for 2024 since his pro-drilling stance could catalyze exploration stocks. Appreciating oil prices provide a clear catalyst for Ring Energy’s EPS expected to grow from 44 cents to 95 cents over the next two years, alongside expanding margins.
The stock looks like a bargain trading at just 4 times forward earnings. Revenue is forecast to jump from $364 million in 2022 to $474 million by 2024. For investors betting on an oil revival, I see sizable upside potential in overlooked small-cap names like Ring Energy as production expands into attractive pricing environments. The macro backdrop looks bright, and as a lean low-cost driller, Ring seems poised to enrich investors willing to ride out some turbulence.
V2X (VVX)
V2X (NYSE:VVX) provides vehicle-to-everything (V2X) technology that links cars with their surroundings for enhanced safety and efficiency. With self-driving vehicles still more aspiration than reality, companies enabling autonomous functionality seem poised to ride the wave as automakers compete to crack driverless cars. Although V2X lacks flashy growth, cheap valuations catch my eye.
Down 26% from its peak, VVX trades at just 10x forward earnings despite 9% EPS growth projected this year and 19% next. Revenue growth remains sluggish at 4-5% over the next two years, but I expect acceleration once EV sales rebound. V2X should also benefit as more cities install smart infrastructure. With the stock languishing after a sideways year, I see favorable risk-reward for long-term investors.
Advanced driver-assistance features are increasingly common, underscoring the steady march toward autonomy. Automakers are racing to unlock level 4/5 self-driving as this is where Tesla shines the brightest. V2X technology will likely be integral here. This niche player looks undervalued relative to the large TAM and future growth potential I foresee.
Grid Dynamics Holdings (GDYN)
Grid Dynamics (NASDAQ:GDYN) provides digital transformation services like cloud engineering, data analytics, and AI to Fortune 500 companies. With expertise in red-hot areas but modest valuations, I believe upside potential remains.
Trading at 35x forward earnings may seem rich, but peers fetch far steeper multiples. EPS should accelerate, climbing from 36 cents in 2024 to 55 cents in 2026, on revenue expanding from $334 million to nearly $500 million. With just 2.9x forward sales versus 10x-plus for most hot SaaS stocks, I think this cash-rich AI consultancy looks attractively priced.
Grid Dynamics seems poised for many years of growth ahead. The stock has meandered sideways for over a year, but I see this as a chance to get in before broader recognition.
Vital Energy (VTLE)
Vital Energy (NYSE:VTLE) explores for oil and gas, mainly across prized Permian Basin acreage. Despite debt concerns, I’m bullish on small E&Ps like Vital as profits swell from high energy prices. As I said before, a Trump win could supercharge drilling stocks.
Revenue growth looks muted long-term, but new contracts from friendlier policies could change that. While the debt load appears elevated, the ratio has dropped sharply of late. With oil still scarce globally, lean players like Vital should mint money if current prices hold. It trades at just 5x forward earnings. I think investors are underestimating its potential at this valuation.
Yes, further debt-fueled purchases could be dilutive. But with cash flows surging, I expect rapid deleveraging ahead. Moreover, the Fed’s impending pivot to rate cuts should ease interest expenses. I believe the risk-reward looks compelling for this overlooked driller.
Clear Secure (YOU)
Clear Secure (NYSE:YOU) operates an identity verification platform serving primarily U.S. airports and venues. With high security still paramount, I see upside potential despite the stock languishing near $20.
YOU has traded choppily between $20-$35 since late 2021 but appears to be stabilizing around $19. Despite beating on both revenue and EPS last quarter, the market remains skeptical. However, with EPS expected to rise from 80 cents in 2024 to $1.40 in 2026, I think Clear Secure looks like a long-term buy.
Consensus forecasts also call for revenue to rise from $750 million this year to nearly $1 billion in 2026. Given high cash reserves and low debt, the company seems financially sound to fund expansion. As travel recovers and more venues adopt identity verification, I expect Clear Secure’s platform to see substantial growth in users and sales.
On the date of publication, Omor Ibne Ehsan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
