Two Growth Stocks Down Over 70% That Might Recover by 2025

"The investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage." -- Benjamin Graham.

Today, we see significant drops in the stock prices of Roku and Celsius Holdings. Roku's stock has fallen 84% from its all-time high, while Celsius's stock is down 71%.

Benjamin Graham, known as the father of value investing and an early mentor to Warren Buffett, advised that investors should not let short-term market fluctuations overly affect their sentiments. This philosophy reminds us that keeping a level head is crucial, especially in turbulent market conditions.

So, what are the benefits of staying calm during market downturns? One of the most significant advantages is the ability to remain objective. Even if investors feel the market is negative, the actual reality may differ, leading to potential opportunities.

As martial arts expert Bohdi Sanders wisely pointed out: "When you react, you let others control you. When you respond, you are in control." This quote emphasizes the importance of measured responses in investing.

1. Roku: The Future of Advertising Demand

Roku earns revenue through both selling streaming devices and digital advertising from its ad-supported content. The latter—known as platform revenue—represents a more profitable revenue stream. However, a concerning trend is that streaming hours have increased more than revenue from advertising.

Here's the trend for Roku in 2024:

	Q1 2024	Q2 2024	Q3 2024
Streaming Hours	+23%	+20%	+20%
Platform Revenue	+19%	+11%	+15%

These numbers, derived from Roku's filings, suggest that while streaming is on the rise, advertising revenue is not keeping pace. This could indicate either a decrease in the frequency of ads or less revenue per ad sold. Ideally, as competition increases, Roku would benefit from higher demand for advertisement space given its extensive audience, which currently encompasses nearly 86 million households. Unfortunately, this increase in demand does not seem to be reflected in the numbers currently.

Despite this frustration, it's encouraging to note that Roku's adoption rate continues to improve. CEO Anthony Wood remains optimistic about growing platform revenue in 2025, citing a potential rise in advertisement demand. Should this optimism translate to reality, Roku's stock may see a healthy rebound as market fears dissipate and share valuations recover.

2. Celsius: Is the Growth Slowdown Temporary?

Celsius has experienced a swift transition from a market favorite to one facing severe criticism. This downturn largely stems from its declining growth rate. After impressive revenue growth figures of 140%, 108%, and 102% in 2021, 2022, and 2023, respectively, Celsius's revenue increased by only 5% during the first three quarters of 2024 compared to the same period in 2023.

Moreover, in Q3 2024, Celsius witnessed a staggering 31% revenue drop year-over-year, marking the first decline since 2018.

Despite this decline, Celsius's stock has become more affordable, with a price-to-sales (P/S) ratio now hovering below 5, significantly below its 10-year average valuation.

This 31% loss in revenue appears alarming; however, Celsius management asserts they are still gaining market share within the energy drink industry. This contradictory information can be explained by recent distributor actions.

PepsiCo, which distributes Celsius products, overstocked its inventory in 2024 and is currently ordering less to sell through what it has on hand. Thus, while Celsius's growth numbers initially appear strong, the current dip is more about correcting past ordering issues than an actual decline in consumer demand.

If the slowdown is indeed linked to distributor inventory corrections, Celsius is likely to regain its growth momentum in 2025. Should revenue figures improve and investor confidence rebuild, the stock could see significant appreciation. Additionally, the company has enhanced its profitability and has potential for expansion into new markets, boosting its long-term outlook.

In summary, while market sentiment around Roku and Celsius has soured considerably, staying objective can lead to opportunities. Each company possesses elements that suggest recovery potential by 2025. Therefore, holding or potentially adding shares of Celsius, in particular, could prove to be a wise investment strategy moving forward.

stocks, investing, growth