2 Top Profitable Stocks Poised for a Bull Run

Some companies have a bright future. Some stocks are way too cheap. When these two qualities come together in one stock, that stock should be primed for a move higher.

Speaking of which, I unearthed two tech stocks from Wall Street’s bargain bin that look ready to run. The stock of a streaming media technology expert is down more than 50% from its 52-week highs, and the stock of a business intelligence specialist is enjoying an even deeper discount of 73%. I would argue that both companies are largely misunderstood and on the precipice of incredible turnarounds.

Roku

Actions of Roku (ROKU -0.50%) have been declining for years and I can’t help but buy more as the stock gets cheaper.

I agree that Roku was probably overvalued in the summer of 2021, but it certainly didn’t deserve an 89% price drop from that peak. These days, these high-growth stocks, past and future, trade at just 2.2 times sales.

Income growth has slowed for a while due to the inflationary crisis. Free cash flow (FCF) briefly turned negative around the same time. Now both measurements are back in black. Revenue grew 56% in three years, while FCF more than doubled.

And the company is set up for success. Roku is just waiting for the digital advertising industry to get back on its feet. The inflation crisis has caused a profound slowdown in this sector. What’s the point of launching lavish advertising campaigns when no one is ready to buy your goods and services? Interest in ad buying is already getting back on track, based on fantastic revenue reports from advertising giants such as Alphabet And The exchange office. In my eyes, it’s only a matter of time before the market gives Roku full credit for the huge business opportunity in front of it.

With recent platform launches in countries like Latin America and Western Europe, Roku is applying lessons learned in North America to a global market. High-speed internet connections are becoming increasingly available around the world, followed by reliable digital payment services. And the cable-free trend is converting cable, satellite and broadcast media customers into streaming households everywhere.

Although the stock’s sharp decline has been discouraging, Roku’s fundamental business improvements and favorable industry trends suggest a triumphant return. Patient investors who recognize the long-term potential should view the current valuation as an attractive entry point. As the digital advertising market continues to recover, Roku’s strong platform and strategic initiatives could generate significant gains, rewarding those who stay the course during difficult times. Remember, the growth trend is back and Roku is already generating significant cash profits. If you build a great business, the returns on investment will come.

BigBear.ai

BigBear.ai (BBAI 0.01%) has suffered a steep price decline since going public via a SPAC merger in December 2021. The stock now trades for less than $4 per share, a 90% drop from its all-time high. Despite its fading, the company’s potential in the areas of artificial intelligence (AI) and data analytics makes a compelling case for risk-tolerant investors.

The company initially forecast a 40% compound annual growth rate (CAGR) on revenue, with a goal of growing from $140 million in 2020 to $388 million in 2023. However, revenue for the full year only increased to $155 million in 2023, a long way off. of its ambitious goals. Profitability has also been elusive, with negative profit margins over several years. Despite these setbacks, BigBear.ai has strategically positioned itself for future growth by developing modular AI tools for data mining and analysis, serving government and commercial customers.

Key initiatives include a partnership with Palantir (PLTR 0.61%) to integrate its Foundry data services and acquisition of Pangiam, a developer of near-field vision AI technologies, in March 2023. The $70 million all-stock transaction aims to increase revenue and improve technological capabilities, even if it will dilute existing actions.

Financially, the company faced difficulties. Alongside broader economic challenges, major customer Virgin Orbit is going bankrupt.

But the turnaround story is real. Analysts currently expect modest revenue growth of 10% in 2024, as well as improving profit margins. Going further, BigBear.ai is targeting a total addressable market (TAM) that is expected to grow from $80 billion in 2024 to $272 billion by 2028. AI adoption is booming in markets national security, supply chain management and digital identity, setting BigBear.ai for lasting success.

It is true that the company must deal with larger and more established players like Selling power (CRM -1.19%) and Palantir. Debt is another concern, with $194 million in long-term debt and just $33 million in cash accounts. The $200 million convertible notes issued in December 2021, maturing in December 2026, could result in further dilution if the company cannot repay them in cash.

Despite these challenges, insiders have become net buyers of BigBear.ai stock, demonstrating their confidence in the company’s future. With a price-to-sales ratio of 2.2, BigBear.ai appears undervalued compared to peers like Salesforce (6.7) and Palantir (22.7).

BigBear.ai therefore presents a high risk, high reward opportunity. The company faces significant challenges, but strategic partnerships, acquisitions and a growing addressable market are paving the way for recovery and growth. This idea isn’t for the faint of heart, but BigBear.ai’s turnaround could be dramatic in the long run.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Anders Bylund holds positions at Alphabet, Roku and The Trade Desk. The Motley Fool ranks and recommends Alphabet, Palantir Technologies, Roku, Salesforce, and The Trade Desk. The Motley Fool has a disclosure policy.