Nvidia and 11 Other Growth Stocks That Are Downright Cheap
Investors are usually divided into two groups: value and growth. Nvidia is one stock that falls under the latter category and is growing at an impressive rate. The twelve growth stocks, including Nvidia, are currently trading at an average of 31 times the estimated 2024 earnings. On the other hand, some popular growth stocks didn’t quite meet the mark.
While Microsoft is expected to experience a 15% growth in sales by 2024, its price-to-earnings-to-growth (PEG) ratio stands at 1.9 times. Tesla, with a PEG ratio of almost 4, has a price-to-earnings (PE) ratio of about 63 times the estimated 2024 earnings.
Surprisingly, Nvidia stock is not as expensive as one might think, considering its phenomenal gains. Over the last 12 months, the stock has returned an incredible 244%. How can a stock perform so well and still be cheap? The secret lies in its growth potential.
Barron’s conducted a screen that focused on stocks with revenue growth equal to or greater than that of Amazon, which is projected to grow sales by 12% in 2024. Nvidia is one of the stocks that is growing even faster—expecting a 60% increase in sales for the calendar year 2024. However, despite this rapid growth, Nvidia shares are trading at around 35 times the estimated 2024 earnings, while the S&P 500 trades at about 20 times.
The reason Nvidia is considered cheap lies in its growth strategy. Wall Street analysts anticipate an average annual earnings-per-share growth rate of approximately 150% between 2023 and 2025. This gives Nvidia a PEG ratio of just 0.23, which is considerably low. In comparison, profitable stocks in the Russell 1000 index generally have a PEG ratio of less than two times.
Barron’s identified the twelve growth stocks with the lowest PEG ratios among Russell 1000 stocks that are growing sales by at least 12%. They are Nvidia, AppLovin, New Fortress Energy, First Solar, Neurocrine Biosciences, BioMarin Pharmaceutical, Progressive, Lululemon, Medpace, Deckers Outdoor, CrowdStrike, and Amazon. Together, these stocks trade at an average of 31 times the estimated 2024 earnings.
While some other popular growth stocks didn’t make the cut, such as Tesla, which is projected to grow sales by over 20%, price cutting and increased competition have led Wall Street to forecast earnings growth of less than 20% per year in the coming two years. With a PE ratio of about 63 times the estimated 2024 earnings, Tesla has a PEG ratio of almost 4.
In conclusion, Nvidia and the twelve growth stocks mentioned above present an enticing opportunity for investors. Not only are they trading at attractive valuations, but they also demonstrate strong growth potential in the future.
Analyst comment
Positive news: Nvidia and 11 other growth stocks are considered cheap, trading at attractive valuations compared to their growth potential. Nvidia is projected to experience a 60% increase in sales for 2024 and has a low PEG ratio of just 0.23. These stocks have the potential for significant earnings growth in the coming years.
As an analyst, I believe that the market will respond positively to this news. Investors are likely to be attracted to these growth stocks due to their low valuations and strong growth potential. This could drive up demand for these stocks, leading to potential price increases in the market.