People looking to grow their money often turn to the stock market, as it allows for the investment of relatively small sums that can turn into big sums given enough time and the right choices. “Small sums” is the operative phrase here and it’s clearly important for a certain group of investors as even large companies such as Alphabet and Amazon will initiate stock splits to ensure their stocks’ prices are within reach of small-scale investors.
Investors with just $1,000 available to put toward a stock purchase have options (including buying fractional shares). Alternatively, they might want to consider younger, smaller companies with attractive growth levels and solid business plans. Companies such as GrowGeneration (NASDAQ:GRWG) and Pinterest (NYSE:PINS) are two stocks offering such potential.
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1. GrowGeneration
GrowGeneration has become the No. 1 hydroponics retailer in the U.S. Hydroponics involves growing crops in water. While hydroponics works with numerous crops, GrowGeneration has gained quite a following among cannabis growers, offering supplies and private-label products.
With 63 stores in states from California to Maine, The company has already gone nationwide, and growers can also buy its private-label products in multiple countries. The recent purchase of Horticulture Rep Group should expand its global supply chain. Additionally, with more states legalizing marijuana for both medical and recreational use, the cannabis industry’s long-term growth should continue for years to come allowing GrowGeneration to expand right along with it.
With a market cap under $500 million, investors can buy this retail stock while it is still a small-cap. But don’t expect it to stay small. Grand View Research projects a compound annual growth rate for the industry of 27% through 2028.
Despite that potential, GrowGeneration stock has fallen to approximately $8 per share after trading at nearly $68 just over a year ago. Overvaluation and a marijuana glut on the West Coast sent the price tumbling in 2021. This has left it with negative same-store sales after experiencing more than 60% increases in same-store sales in 2020.
On the positive side, the price drop has taken its P/E ratio down to 38 after briefly rising above 800 early last year, and the valuation is looking more like a bargain. Though analysts see lackluster growth in 2022, they project 25% sales growth in 2023 and rising earnings.
Management is more optimistic and expects same-store sales to turn positive again in the second half of the year. It also expects to add between 15 and 20 stores during the year and has communicated a plan to eventually open stores in all 50 states. Hence, the growth prospects for both GrowGeneration and the industry it serves should help the stock recover in time.
2. Pinterest
Pinterest has become the social media site for people with ideas. Users “pin” inspirational ideas to their walls. Pinterest tracks these ideas and helps companies submit their own related “promoted pins” that build on the inspiration and potentially leads to sales of the promoted products (as well as revenue for Pinterest).
This approach also gives Pinterest a significant competitive advantage. Most sites, including Meta Platforms‘ Facebook, must rely on demographic and psychographic profiles or site visits. In contrast, pinning more directly shows what an individual customer really likes, allowing the company to tailor their marketing around the users’ known preferences.
Moreover, it draws an audience attractive to marketers. About 45% of its U.S. users earn over $100,000 per year, and most pinners turn to the site when searching for new ideas.
Admittedly investors have soured on the stock as monthly active users (MAUs) fell 6% in the fourth quarter of 2021, primarily because pandemic-related reopenings drew some users’ attention away from the app. The stock has fallen by about 75% from its 52-week high.
However, 2021 average revenue per user (ARPU) grew 36% during that period to $5.79. Consequently, 2021 revenue of $2.6 billion surged 52% compared with 2020. As a result, its 2021 net income came in at $316 million, up from a loss of $128 million in 2020.
This includes a drop in income in the fourth quarter to $175 million versus $208 million in the year-ago quarter. Quarterly earnings fell amid rising expenses for research and development and sales and marketing. Supply chain constraints have also affected Pinterest’s growth, and the company expects that challenge to remain for a few quarters.
Still, Pinterest management expects the pandemic to be “less of a headwind” in 2022 and forecasts revenue growth in the high teens for the first quarter of 2022. Additionally, Pinterest stock now sells for 5.8 times sales, down from a price-to-sales ratio of 32 in the early part of 2021.
Finally, at $23 per share, smaller investors can afford to invest. Between this lower valuation and the rising ARPU, Pinterest is a top stock to buy that can make you richer as supply chain challenges recede.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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