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2 Beaten-Down Growth Stocks That Could Double

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These cheaply valued companies are growing rapidly, and that could boost their stock prices.

The stock market sell-off this year has created opportunities for investors to buy fast-growing companies at cheap valuations, with Micron Technology (MU 0.71%) and Twilio (TWLO -2.95%) being two such stocks that could be bought at mouthwatering multiples right now.

Shares of Micron Technology are down 23% in 2022, while Twilio stock has lost half its value so far this year. However, the common link between the two companies is that the robust demand for their offerings has been helping them post terrific growth, and they are unlikely to run out of steam any time soon.

The growing need for storage across the globe should lead to stronger demand for Micron's memory chips in the future, while Twilio is facilitating a shift from physical call centers to cloud-based contact centers with its application programming interfaces. It wouldn't be surprising to see these catalysts help these two tech stocks double in the future. Let's see how that may happen.

Image source: Getty Images.

1. Micron Technology

According to a third-party report, the global cloud storage market is expected to clock a compound annual growth rate (CAGR) of 22% through 2025. Meanwhile, the smartphone storage market is also expected to increase at an annual growth rate of 11% through 2026 due to a combination of higher volumes and an increase in storage per device.

The dynamic random-access memory (DRAM) market, meanwhile, is expected to hit $206 billion in revenue by 2028, compared to $105 billion in 2020, as the need for faster computing grows. All of this indicates that Micron's end market is built for secular growth in the long run, and the chipmaker is already benefiting from those trends, as its pace of growth indicates.

MU Revenue (TTM) data by YCharts

The company posted 33% year-over-year revenue growth in the first quarter of fiscal 2022 to $7.7 billion, along with a solid spike in earnings to $2.04 per share, from $0.71 per share in the prior-year period. Micron will release its fiscal second-quarter results on March 29, and it is expected to maintain its terrific growth, with revenue expected to increase 20% year-over-year and adjusted earnings expected to nearly double to $1.95 per share.

Micron's share of the DRAM and NAND (short for 'not and') markets should help it sustain its high pace of growth in the long run. The company is the third-largest player in the DRAM business, cornering nearly 23% of the market in the third quarter of 2021. What's worth noting is that Micron's share of the DRAM market has increased over the years, as the company controlled only 11% of this market at the beginning of 2011.

Micron looks all set to corner a bigger share of the DRAM market in the future thanks to its new products, which are reportedly better than those of its rivals. The company also has an 11% share of the NAND flash memory market, which puts it in a nice position to capitalize on the growing demand for solid-state drives used in computers and data centers.

In all, Micron's end-market opportunities and its share of those markets indicate why its earnings are expected to grow at nearly 24% a year for the next five years. At that pace, Micron's adjusted earnings would jump to nearly $17.80 per share after five years. Multiplying the projected earnings figure with Micron's five-year average forward earnings multiple of 10 indicates that the stock could be worth close to $180 in the future.

So Micron stock could more than double in the coming years from its closing stock price of just under $70 on March 14, making it an enticing growth stock to buy right now as it is trading at just 11.2 times earnings.

2. Twilio

Twilio is a cloud communications specialist that's operating in a market that's set to achieve impressive growth in the long run. More specifically, Twilio's end market is expected to grow at 28% a year through 2026, and the company is growing at a quicker pace than the market it operates in.

Twilio's revenue increased 61% in 2021 to $2.8 billion, this was primarily driven by its acquisitions of Segment and Zipwhip. What's more, the company's organic revenue was up 44% last year, led by a nice bump in its customer base and an increase in spending by customers. Twilio had 256,000 active customer accounts at the end of 2021 compared to 221,000 at the end of 2020, while a dollar-based net expansion rate of 133% during the year points toward an increase in the adoption, or the usage, of its services by customers.

Analysts expect Twilio's impressive top-line growth to continue in 2022 and 2023, projecting 35% and 30% annual revenue growth, respectively. Additionally, Twilio is expected to become profitable on a non-GAAP basis next year with projected earnings of $0.26 per share, which would be a big improvement over this year's projected loss of $0.44 per share.

Such remarkable growth at Twilio isn't surprising, as the company leads the communications platform-as-a-service market by a handsome margin. It reportedly controlled 38% of this space in the second quarter of 2021, according to Synergy Research Group, which puts it way ahead of second-placed Vonage, which controlled 11.8% of the market. As a result, Twilio is in a terrific position to corner the significant growth of the cloud communications market.

That's why the stock looks like a bargain right now. Trading at eight times sales, the stock is well below its five-year average price-to-sales ratio of 16.9. Twilio is expected to hit $5 billion in revenue by the next fiscal year. Assuming the stock regains its mojo through its terrific growth and trades at even 10 times sales after two years, its market capitalization could hit $50 billion, which would be more than double its current market capitalization of $23 billion.

As such, investors looking for a potential growth stock trading at an attractive valuation should take a closer look at Twilio, since it could move beyond its disappointing 2022 performance and soar significantly higher.

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