The S&P 500 set one all-time high after another in 2024. The benchmark index ended the year up 23%, and that comes on the back of a great 2023 when the index climbed 24%. But for many stocks, prices have climbed faster than improvements in the underlying fundamentals. Investors wouldn't be incorrect to think equities are expensive right now.
But even in an expensive market, there are still opportunities for investors. While most of the S&P 500's growth was driven by just a handful of megacap growth stocks, smaller stocks still present a great opportunity. With just $100, investors can buy shares in any of the following growth stocks at a price that's more than fair.
1. Uber
Uber(NYSE: UBER) is practically synonymous with "ride-share service." The company holds a dominant position in the market with over 161 million users on its app. That customer base creates a network effect, attracting more drivers to its platform around the world. And Uber has leveraged its network to expand to restaurant and grocery delivery as well as a small freight business.
Both the ride-sharing and delivery business are exhibiting strong growth. In the third quarter, gross bookings increased 17% and 16% for ride-sharing and delivery, respectively, and the ride-sharing business saw significantly improved profitability.
But several factors have weighed on the company recently. Uber's subscription service, Uber One, came under investigation from the FTC for being too difficult to cancel. Additionally, the Federal Reserve suggested it'll make fewer rate cuts than initially anticipated in 2025, which could increase the cost of carrying debt for Uber. It currently has $11 billion on its balance sheet.
The biggest threat to Uber, though, is the rise of autonomous vehicles. Alphabet's Waymo and Tesla are both working on developing ride-sharing services using their own autonomous vehicles. But Uber's massive scale and user base will be tough to overcome. In fact, Alphabet decided to partner with Uber to launch its service in Austin and Atlanta. Handing off the job of managing customers and a fleet of vehicles to Uber will allow Waymo to grow quickly and focus more on ensuring its vehicles operate as expected.
The impact of all of that is Uber looks like a good value, priced at around $65 per share as of this writing. That makes for an enterprise value-to-sales ratio of just 3.4 and a forward price-to-earnings multiple of 28. That said, analysts expect sales growth of 16% next year and earnings to grow even faster at 23% thanks to improving profitability. With good growth ahead of it, investors should be willing to pay that price for Uber stock.
2. Etsy
Etsy(NASDAQ: ETSY), the marketplace operator for unique goods, has seen its operations come under pressure over the last two years. It's currently undergoing a transition period focused on improving long-term growth in gross merchandise sales. But that comes with some near-term pain.
Etsy is moving away from optimizing its site for immediate sales, instead focusing on the customer experience. That includes highlighting the marketplace as a premier destination for gifting and developing a loyalty program. It also made some changes on the merchant side of operations to discourage sellers from listing mass-produced products that all look alike.
The results of the efforts are clear. The short-term pain came in the form of a 4.1% drop in gross merchandise sales. Etsy offset that pressure with a higher take rate thanks to shifting to its own payments platform, increasing advertising service sales, and a small store set-up fee to help ensure merchants comply with Etsy's focus on unique goods.
Etsy is doing a great job of managing its business amid a decrease in discretionary spending. Consumers stricken by higher prices for essentials like housing, groceries, and clothing pulled back on discretionary expenses. However, spending intentions are on the rise again and Etsy could see a strong recovery in sales as consumers loosen their purse strings in 2025.
With a share price of $53 as of this writing, Etsy stock trades for 20 times analysts' expectations for 2025 earnings. While it's certainly a more risky stock, investors are getting a good value at today's price to take that risk. Investors will have to remain patient with Etsy, as it's more cyclical than many retailers. But if its efforts to promote long-term customer growth and loyalty work out, it should see substantial gains over the long run.
3. DraftKings
DraftKings(NASDAQ: DKNG) is one of two dominant online sports betting and iGaming companies in North America. Online gambling is growing quickly in America, with analysts expecting revenue to double between 2023 and 2029 as more states legalize sports betting and iGaming. DraftKings is well-positioned to take advantage of the growth in the market despite the recent launches of smaller competitors.
That's because DraftKings has a couple of advantages. First, it has a strong brand name and it works with major sports franchises and entertainment networks to maintain that strength. Second, and perhaps more importantly, its scale provides it with a data advantage over smaller competitors.
Data is essential for sportsbook operators. It's the lifeblood of setting accurate lines, ensuring the house has an advantage. Data can help identify sharp bettors and mitigate risks of losing to them. It can also help develop new products like live betting, player props, and same-game parlays. And it can offer better promotions to keep bettors engaged with its product.
The growing market and DraftKings' advantages led to strong results in 2024. In the 12 months ending in September, 9.3 million people used one of DraftKings' products. That's up 41% year over year. Management expects revenue to grow in line with its customer acquisition rate, and it's showing profitability improvements with an expected EBITDA margin of about 7.4%. For 2025, management expects its EBITDA margin to double as revenue climbs 27% to 35% year over year.
At a price of $38 per share, DraftKings stock has an enterprise value roughly 20 times management's forecast for 2025 EBITDA. With strong margin improvement and a long runway to grow sales, DraftKings should support very high earnings growth for years to come. Despite its strong performance over the last two years, it's not too late to bet on the online gambling stock.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Adam Levy has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Etsy, Tesla, and Uber Technologies. The Motley Fool has a disclosure policy.
