In This Article:
The stock market has had a great run the past few years. The S&P 500 index is sitting close to new highs, but some stocks that were beaten down in the 2022 market correction are just starting to rebound. Here are two fallen growth stocks that are surging and could hit more new highs in 2025.
1. Alibaba
Alibaba (NYSE: BABA) is China's leading e-commerce company. The stock is up 60% year-to-date following another strong earnings report for the December-ending quarter. At the recent $136 share price, the stock is still trading at a reasonable price-to-earnings multiple that could support more gains in 2025.
Alibaba's revenue, which primarily comes from fees charged on transactions and other merchant services, grew 8% year-over-year in the most recent quarter, driven by solid gains in its popular Taobao and Tmall marketplaces.
It is also the leading cloud services provider in China, which is also starting to kick into high gear. Growth in cloud revenue accelerated to 13% year-over-year, driven by strong demand for artificial intelligence (AI) services. Alibaba's leading cloud business is a catalyst for the stock, as management expects accelerating growth through the year.
China is the second most populated country in the world with 1.4 billion people. Alibaba has a lot of potential for growth in China alone, but it's also showing strong growth in international markets, where its commerce revenue grew 36% year-over-year.
The stock's modest forward price-to-earnings (P/E) of 16 could stretch higher as Alibaba shows improving financial results in the near term. Long term, analysts expect annualized earnings growth of 18%, which is more than enough to double shareholders' money in five years, assuming the stock continues to trade at the same P/E multiple.
2. Roku
Roku (NASDAQ: ROKU) is a popular streaming service platform with more than 89 million households and growing. The stock is trading well off its highs from a few years ago, but it's up 22% year-to-date and trading at a more reasonable valuation.
Roku monetizes its platform mostly through advertising, which allows the company to bring free content to viewers and grow its platform. But dependency on advertising also makes it challenging to earn high profit margins when the economy hits a rough patch. For this reason, the company has struggled to generate consistent net income in recent years.
But the key variable that will lead the company to profitable growth is scale. Roku has consistently grown the number of households on its platform at double-digit rates, and these viewers are spending more time watching content. In Q4, streaming households grew 12% year-over-year, while the number of streaming hours grew 18%.