2 Promising Growth Stocks That Are Down 70% From Their Highs

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Growth stocks are falling left and right in the stock market. If you’re holding cash, investing at a time like this could pay off significantly years from now.

A couple of stocks that look particularly attractive are Ginkgo Bioworks Holdings (DNA 8.18%) and Zoom Video Communications (ZM 0.20%). Although they have taken a beating of late, here’s why you should consider buying them at their reduced prices.

Image source: Getty Images.

1. Ginkgo Bioworks

Biotech company Ginkgo Bioworks went public last year through a merger with a special purpose acquisition company. But it’s been a rough ride for early investors, as the stock is trading close to $2 per share — nowhere near the highs of nearly $16 that it hit at its peak in November.

The company programs DNA cells, and has the potential to serve many different sectors. But short-seller Scorpion Capital isn’t convinced, and it released a report about the business last year, calling it a “colossal scam” and alleging that it relies on related-party customers to generate revenue.

However, news of big-name partnerships tells a different story. In 2017, Ginkgo partnered with life sciences company Bayer to improve agriculture sustainability. The following year it announced it was working with marijuana producer Cronos Group in an effort to create cultured cannabinoids that would improve Cronos’ prospects for profitability in the marijuana industry. Last month Ginkgo also partnered with an animal health company, Elanco, and synthetic biology company, Twist Bioscience

Ginkgo is unlocking significant opportunities with these deals. And the company has been realizing some of that growth already, with revenue in 2021 totaling $314 million and rising by 309% from the previous year.

2. Zoom Video Communications

Zoom got a huge boost from the pandemic and stay-at-home orders. Although videoconferencing was around long before 2020, Zoom made it easier to use, allowing users to just click a link in a browser and join a meeting with someone. 

Now, however, with COVID-19 cases declining and the economy opening back up, investors have been dumping the stock out of fear that its high-growth days are over. Shares of Zoom are down a whopping 50% in 2022, and at around $93 a share, it would need to more than quadruple in value to get back to its 52-week high of more than $406.

In its most recent quarter, the company’s revenue totaled $1.1 billion for the period ending Jan. 31. That was a 21% uptick in sales from the same quarter in 2021. Just two years earlier, the company reported only $188.3 million in revenue for the same three-month period.

It has been a phenomenal boom for Zoom over the past few years. And while its days of generating 80% revenue growth are long gone, that doesn’t mean the business is doomed. Still being able to generate 21% growth means the company is adding on top of those strong numbers in the past. Plus, the company has become more efficient and is reporting better profits. This past quarter, its operating income totaled $251.8 million, and was 24% of revenue. Two years earlier its operating margin was less than 6% of sales.

Zoom is still growing, and it’s doing so while being more profitable along the way. That’s great news for investors. Importantly, the sharp decline in its share price makes its valuation more tenable. Its current price-to-earnings ratio of 20 is nowhere near the astronomical 100 times earnings investors were paying for the stock a year ago.

Better fundamentals and a more reasonable price for the stock make Zoom a solid buy right now.

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