Some investors may think that an amount like $1,000 is too small to earn significant returns. However, that is not necessarily the case. A $1,000 investment in Home Depot‘s 1981 IPO would be worth more than $18 million today, not counting dividend income. That is not to say investors should expect such returns, but it shows that a small investment is not necessarily an impediment to massive gains when held over time.
Moreover, even with indexes at record highs, some stocks have struggled to return to growth.
Still, some of these stocks have pledged to return to core strengths, which should revive investor interest. While investors may need to exercise patience, shares of Sea Limited (NYSE: SE) and Block (NYSE: SQ) stand a good chance of producing triple-digit returns from current levels.
Sea Limited
After the 2022 bear market, many investors abandoned Sea Limited stock. After rising as high as $372 per share in 2021, Sea had lost more than 90% of its value at one point amid strategic missteps and regulatory setbacks.
Nonetheless, investors now have reason to believe it can regain much of its lost value. For one, it had lost investors by entering markets in Europe and Latin America, where it had less chance of building a competitive moat. With the exception of Brazil, these moves ended with a partial or complete pullout amid considerable losses. Now, it invests more in logistics in its home region of Southeast Asia, where it can reinforce its competitive advantage.
Moreover, its Garena gaming division lost the right to offer its popular Free Fire game in India, a country with more than 1.4 billion people, in 2022. The Indian government’s Ministry of Home Affairs cited data privacy concerns as the reason for this decision. However, Garena partnered with an India-based hosting and storage company to allay those concerns and believes it is likely on the verge of gaining approval to bring Free Fire back to India, which could revive this long-suffering division.
Also, its fintech segment, Sea Money, continues to deliver Sea Limited’s fastest growth. Assuming the company can address the challenges with the other two segments, the stock could experience massive growth.
Due to Garena’s struggles, Sea Limited’s $13 billion in revenue in 2023 rose by only 5% year over year. Still, it reported its first yearly profit attributable to shareholders of $151 million, a milestone that reduces the need for outside funding.
Consensus analyst estimates call for a 116% rise in profits this year and a 159% increase in net income in 2025, presumably on heightened growth expectations. The analyst estimates included several target price increases and two analyst upgrades following the latest earnings announcement. Ultimately, its rising profits should serve as a catalyst that could more than double the stock price.
Additionally, a forward P/E ratio of 32, down from over 60 last spring, lowers the risk of buying now, and an approximate share price of $60 per share makes it affordable to small investors. When considering the widening competitive moat in retail and the likely return of Free Fire in India, the rise in Sea Limited stock will likely continue.
Block
Like Sea Limited, Block earned massive returns in the previous bull market only to watch most of those gains evaporate amid a loss of focus.
Its Square ecosystem and success with Cash App initially drew investor interest. However, CEO Jack Dorsey’s move to create a company more oriented to Bitcoin and adding non-core operations such as a music streaming business left investors questioning Block’s priorities.
Fortunately, Dorsey appears to be addressing this issue. On the fourth-quarter 2023 earnings call, he pledged to make improving Square’s platform his “No. 1 priority” and outlined his top four concerns for Square.
As for Cash App, Dorsey wants to make it one of the largest banking services providers for those earning under $150,000 annually. To this end, he plans for Cash App to add more banking-related features, serve families, and build a “social bank” — a bank designed to foster purpose and a positive impact on society — for the next generation.
This should be welcome news to investors since these two platforms make up over 99% of Block’s gross profit. Additionally, Block will likely experience more Bitcoin trading activity with the cryptocurrency at record highs.
Since Block has to treat Bitcoin trading volume as revenue, gross profit may better reflect its top line. To this end, Block’s 2023 gross profit rose 25% over the previous year and non-GAAP (adjusted) net income rose 84% for the same period.
|
Block, Inc. Performance by Year |
|||
|---|---|---|---|
|
(in millions) |
2023 |
2022 |
2021 |
|
Gross Profit |
$7,505 |
$5,992 |
$4,420 |
|
Non-GAAP Net Income |
$1,130 |
$613 |
$675 |
Source: Block, Inc. 10-K, 2023.
Looking forward, analysts expect an 86% increase in profits this year, followed by a 29% rise in 2025 as some analysts raise their price targets.
Despite these attributes, the stock trades at a forward P/E ratio of 24, down from a high of almost 150 in early 2022. Thus, Block’s low valuation and its renewed focus on Square and Cash App could help small investors grow their wealth.
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Will Healy has positions in Block and Sea Limited. The Motley Fool has positions in and recommends Bitcoin, Block, Home Depot, and Sea Limited. The Motley Fool has a disclosure policy.
Got $1,000? 2 Top Growth Stocks to Buy That Could Double Your Money was originally published by The Motley Fool
