2 outdated growth stocks you may regret buying

Stock market crashes look discouraging on the chart if we limit ourselves to a short time horizon. However, the further we zoom out, the more they look like minor blips, as stocks always recover and continue to march upwards. Therefore, during a bear market, it is worth investing in shares with attractive prospects. There’s no better time to implement half of the most basic investing advice: “Buy low.”

But even if we’re not dealing with a bear market, buying shares of distressed companies that have what it takes to recover is also a great move. Consider two such actions: DexCom (NASDAQ: DXCM) AND Year (NASDAQ: ROKU).

1. DexCom

DexCom shares fell recently following its second-quarter earnings results. What exactly prompted the market to overprice the company’s shares? A diabetes medical device specialist has revealed it wasn’t attracting as many new customers as expected.

Meanwhile, many consumers took advantage of discounts during this period, which hurt its profits. DexCom’s outlook for the third quarter wasn’t great either. And given the high share prices, it’s not shocking to see a slight correction in sight. However, DexCom’s forward price-to-earnings (P/E) ratio is still 39, which is more than double the healthcare industry’s average P/E of 19.

DXCM PE Ratio (Forward) data by YCharts.

These are arguments against the stock, but what about the DexCom bull scandal? Where will the company be in 10 years?

First, it is important to emphasize that DexCom is one of the leaders in continuous glucose monitoring (CGM), a technology that has been proven in numerous studies to improve health outcomes for diabetic patients. However, there is a huge market to address here. DexCom’s main competitor, Abbott Laboratoriesestimated that only 1% of the “half a billion adults” with diabetes worldwide have access to CGM technology.

The market DexCom is targeting is much smaller, at least for now. However, there is plenty of growth fuel even in countries where it already operates. In the United States, the percentage of CGM users is much lower than the percentage of patients eligible for third-party insurance.

Moreover, DexCom builds a competitive advantage. The company’s technology is compatible with other devices and digital health applications, from insulin pens and pumps to smartphones and other devices Apple To watch. The more users in the ecosystem, the more attractive it becomes for third parties to make their devices compatible with DexCom technology – an example of a network effect.

Finally, DexCom is an innovative company that should continue to produce new gems. Its G7 has been available in the US market since last year and is the most accurate CGM on the market. It also recently launched an over-the-counter CGM option in the US

Despite the recent decline, DexCom’s long-term prospects are exciting. The stock should generate above-average returns over the next decade, just as it has in the past.

2nd Year

Roku is a leader in streaming, with the company’s vast ecosystem spanning 83.6 million homes. Although the company’s financial results this year are not the worst, investors are particularly concerned about several indicators. Let’s consider two of them.

The first is average revenue per user (ARPU). In the second quarter, Roku’s ARPU remained flat at $40.68, even though Roku’s revenue increased 14% year-over-year to $968.2 million. The second thing is Rok’s result: the company is not profitable. In the second quarter, Roku reported a net loss per share of $0.24, although this was significantly wider than the loss per share of $0.76 recorded in the year-ago period.

Can Rok overcome these two obstacles and deliver solid returns in the next decade? In my opinion the answer is yes. In terms of ARPU, Roku noted that it is starting to gain more users in international markets. For now, it’s about scale in these regions, not monetization. However, this should be an important growth driver for Roku.

While the streaming industry continues to grow, it still accounted for just 41% of U.S. TV viewing time in August. So there is a huge opportunity there. As Roku becomes more established in these regions, the company’s monetization efforts will gain momentum, leading to higher ARPU and revenue growth.

And while the red ink on the results may be a problem, Roku’s platform segment, its most important, is profitable. Platform activities bring in revenue from advertising, operating system licensing agreements, and more.

The company is seeing sales of its eponymous streaming player in its device segment – which is unprofitable. It is not without reason that Roku decides to sell these devices at a loss. For now, the most important thing is the development of the ecosystem. With a large enough user base, monetization opportunities will increase, as will revenues. This is Rok’s path to profitability and a milestone it should reach well before 2034.

In the meantime, the company has tools to recover and deliver oversized returns. I think it would be a good idea to invest in stocks while they are still falling.

Is it worth investing $1,000 in DexCom now?

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Prosper Junior Bakina holds positions in the Year. The Motley Fool has positions in and recommends Abbott Laboratories, Apple and Roku. The motley fool recommends DexCom. The Motley Fool has a disclosure policy.