Two stocks experiencing significant drops of 26% and 83% present potential opportunities for doubling investments at present.
The S&P 500 continues its impressive performance in 2025, with a year-on-year increase of around 28%. However, the market's bloated state is undeniable. The average P/E ratio for the S&P 500 stands at an alarming 29 - a three-year high. Yet, there's hope for savvy investors seeking value. Some undervalued stocks, like Roku (ROKU) and Ulta Beauty (ULTA), could witness a comeback as the market cruises through its bull phase and inflation cools down.
1. Roku: 84% off record highs
Despite facing intense competition and elusive profitability, Roku maintains its leading position as the top streaming platform in the U.S., Canada, and Mexico. It's also expanding into more international markets. The company's resilience is evident in its robust growth in both device and platform segments, with the former making up for a considerable portion of its total revenue.
Roku's ad business is showing signs of recovery, with the number of member households and streaming hours on the rise. Q3 quarterly accounts increased by 13% YoY to 85 million, and streaming hours went up by 20%. This growth isn't just limited to new accounts; existing members are also engaging more with the platform.
The company is edging closer to profitability, posting positive EBITDA and free cash flow for three consecutive quarters. Though net profitability isn't on the horizon in 2025, Roku's leading position and focus on growth opportunities in the expanding streaming industry bode well for its future profits.
2. Ulta: 26% off record highs
As consumers opt for cheaper alternatives, Ulta Beauty's stock has suffered. However, the beauty retailer is still posting modest sales growth, climbing 1.7% in the 2024 third-quarter and registering a 0.6% increase in comparable sales. The company's dedicated customer base continues to shop with it, evidenced by the rise in transaction growth which outpaced ticket growth.
Inflation has taken a toll on Ulta Beauty's operating margin, which contracted from 13.1% to 12.6% in the third quarter. Yet, Ulta leverages its position as a leader in the category, ensuring it meets shifting demands and capitalizing on emerging trends. Confronting challenges head-on, the company has identified wellness as a growing trend and is seamlessly incorporating it into its offerings and marketing strategy.
At current prices, Ulta shares trade at an affordable forward 1-year P/E ratio of under 17. This presents an excellent opportunity for investors to invest in a top-rated stock during its recovery phase.
Both Roku and Ulta Beauty present intriguing investment opportunities in a thriving market. Their strategic initiatives and focus on growth and innovation could deliver significant returns to investors looking to capitalize on their recovery strengths.
Enrichment Data:
Roku, Inc. (NASDAQ: ROKU)
As of February 7, 2025, Roku's stock had surged by 3.3% during trading, reaching $84.40 before closing at $83.73[4]. Several analysts have expressed their views on Roku, with Baird upgrading its rating to a "strong-buy," while UBS initiated coverage with a "neutral" rating and a $73.00 price objective[4].
The company continues to dominate the streaming market and is exploring potential for synergies with adtech leader The Trade Desk, fueling speculation about a potential adtech giant[4].
Ulta Beauty
In its Q3 2024 results, announced in December 2024, Ulta Beauty reported a year-over-year increase of 1.7% in revenue, reaching $2.53 billion[2]. The company has set long-term financial targets, aiming for 4%-6% net sales growth, 12% operating profit growth with an operating margin of 12%, and double-digit EPS growth starting in 2026[5].
Ulta Beauty is focusing on digital transformation and international expansion. It has also prioritized technology integration and the expansion of its loyalty program as key components of its growth strategy[2].
- For savvy investors looking to capitalize on potential value, the current stock price of Roku, with a forward 1-year P/E ratio of under 18, could present an attractive investment opportunity in the finance sector.
- Despite facing inflation-related challenges, Ulta Beauty's modest sales growth and emphasis on wellness trends position it as a promising investment prospect in the investing world, considering its affordable forward 1-year P/E ratio near 17 as of the current market state.
