The S&P 500 had an impressive performance in 2024, climbing by 25%. However, not all growth stocks experienced similar success, even as their businesses showed continued expansion. Here, we’ll delve into two stocks that Wall Street seems to be overlooking, but which could potentially shine in the upcoming year.
### 1. Roku
Roku’s journey has been a bit rocky lately, with its stock price significantly below previous highs over the past three years. Nevertheless, the company is steadily increasing its household user numbers at a double-digit pace. Management is also taking steps to enhance margins, making the stock appealing at its current lower valuation.
As more consumers move away from traditional TV and embrace digital platforms, Roku is benefiting from consistent growth. Its metrics—streaming households, hours streamed, and revenue—are all expanding at impressive rates.
Even with slow consumer spending, Roku’s ad-supported platform remains attractive to consumers. The number of streaming households rose by 13% from the previous year, totaling over 85 million in the third quarter.
Furthermore, new Roku users are highly engaged, with total streaming hours increasing by 20% to 32 billion. On average, households spent more than four hours a day on the platform last quarter. This level of engagement is one reason advertisers are eager to invest in Roku. The company’s platform revenue, which includes advertising and premium subscriptions, saw a 15% rise year over year, reaching $908 million.
While revenue has been robust, what could really drive the stock upward is Roku’s improving profit margins. They’ve climbed from 48.1% in Q3 2023 to 54.2% in Q3 2024, and management is exploring several strategies to boost them further.
For instance, Roku plans to monetize its home screen with new features, create additional revenue through partnerships, and increase the number of subscriptions processed via Roku Pay.
With improving margins and the ongoing shift in ad spending towards streaming platforms, Roku is well-positioned to offer significant returns to its shareholders.
### 2. DraftKings
Online sports betting is an intriguing megatrend, offering promising long-term returns for investors. The market is projected to hit $24 billion by 2029, according to Statista, and DraftKings is well-poised to capitalize on this growth.
Although the stock took a hit in 2022 alongside the broader market downturn, it has made a remarkable comeback over the last two years. In the third quarter, DraftKings’ revenue increased by 39% year over year, nearly reaching $1.1 billion. Management anticipates a 31% growth in the top line for 2025.
Despite underperforming in 2024, the current stock price represents better value than it did a year ago. It’s now trading at just over four times its trailing-12-month revenue, compared to more than 5.6 times sales last year.
One key driver for the stock is improving profitability. Management forecasts free cash flow to reach around $850 million by 2025. DraftKings has made significant strides in boosting this crucial profitability measure over the past two years, suggesting potential for higher margins long-term as it attracts more customers.
Sports betting is now legal in 38 states, but two major states—Texas and California—have yet to legalize online sports betting. These states, home to numerous sports fans, could be a considerable growth engine for DraftKings.
As the sports betting megatrend unfolds, it could deliver market-beating returns over the next five years and beyond. The recent price dip presents an excellent opportunity to consider adding DraftKings to a well-rounded growth portfolio.
