2 beaten growth stocks to consider

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Netflix (NASDAQ: NFLX) and platoon (NASDAQ: PTON)saw their shares drop in 2021. While Netflix only rose 1%, Peloton stock is down around 17%. Investors fear that companies may be the victim of a loss of consumer interest when economies reopen. Both have been big winners during the pandemic.

Still, the concerns may be overstated as Netflix and Peloton were thriving even before the pandemic. Sure, the lockdowns gave it a boost, but that doesn’t mean the reopening makes it a bad investment. The negative sentiment could be an opportunity for long-term investors.

Image source: Getty Images.

A powerful flywheel

Netflix is ​​approaching an inflection point. The company has attracted enough subscribers and raised prices enough to keep cash flow positive from now on. This is what management said on this subject in a letter to shareholders: “As we discussed in the last quarter, we believe that we are very close to being FCF in the long term. [Free Cash Flow] positive and that we no longer need to raise external funding to finance our day-to-day operations. ”

As of March 31, Netflix had 208 million subscribers, which brought it in nearly $ 7.2 billion in revenue in the first quarter. Even without adding members or increasing the price, that would represent an annual rate of around $ 28.6 billion. The constant stream of revenue gives Netflix the power to build a massive content library that will attract and retain subscribers. Indeed, Netflix plans to spend $ 17 billion on content in 2021.

Netflix’s economies of scale are reflected in its operating profit margin, which fell from 4.3% in 2016 to 18.3% in 2020. It costs Netflix about the same price if 10 million people or 20 million people are streaming content on the platform.

As the pandemic has accelerated demand for streaming entertainment content, the shift from linear TV to streaming is a lasting tailwind behind Netflix.

Lower half of a person pedaling an exercise bike.

Image source: Getty Images.

Convenience in exercise

At the onset of the coronavirus pandemic, lockdowns of course fueled sales of Peloton’s popular exercise products. However, sales had already grown by more than 100% per year for six years.

The company’s products and services are extremely popular with consumers, and Peloton has received a Net Promoter Score, which measures customer loyalty, satisfaction and enthusiasm, of 94. Peloton has accumulated 2 million subscribers at Connected Fitness, who pay a monthly fee to access workout content. Still, 52 million people have expressed interest in knowing more about a Peloton product or service, highlighting the vast addressable market ahead of Peloton.

Indeed, customer demand for Peloton products was so high at one point in the pandemic that people had to wait over 10 weeks to receive an order. Management can be commended for quickly addressing the long wait time and bringing it down to pre-pandemic levels. In addition, Peloton has invested in increasing its capacity to meet growing demand. This gave management the confidence to expand into a new international market. The company announced the availability of Peloton in Australia from March.

Underlying Peloton’s rapid growth is the convenience of home workouts compared to gyms. With a home workout, you don’t have to drive to the gym, search and pay for parking, or find that your chosen equipment is already in use. Here in Los Angeles, before the pandemic, several times a month it took 45 minutes to combine going to my gym and finding a parking space. And my gym is only four miles from my house.

According to Statista, there are 174 million fitness club members worldwide. It is a large target audience of people that Peloton can serve with its products and services.

Netflix and Peloton are loved by millions of consumers who use their products and services. This should allow them to continue serving an expanding customer base for years, if not decades. Investors should definitely consider adding these two growth stocks to their lists.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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