Stocks with solid growth prospects aren't always trading for exorbitant sticker prices. Whether they recently conducted a stock split, their shares dropped unjustifiably, or the market isn't seeing their potential, there are many reasons why otherwise attractive companies would trade for less than $100 despite being on the market for a while. Companies in this category can allow people to invest on a budget, at least for those who prefer not to buy fractional shares.
With that background, let's consider two growth stocks trading for less than $100 that look like great options now: Shopify(NYSE: SHOP) and Exelixis(NASDAQ: EXEL).
1. Shopify
Shopify wants to be a 100-year company. It's unknown whether it can accomplish that goal yet. However, Shopify's prospects look promising for the foreseeable future. The e-commerce industry where it operates has a vast runway for growth. In the second quarter, e-commerce sales accounted for just 16% of U.S. retail sales. This number likely hasn't peaked yet. Analysts predict the industry will grow at a good clip in the coming years.
Shopify's platform, which allows businesses to build online storefronts, is one of the leaders in this e-commerce niche. Shopify also has an app store with hundreds of options that allow merchants to customize their websites based on their needs and those of their customers. It's hard to ditch the company's ecosystem once businesses have spent the time and effort to create customized storefronts that are already attracting customers, which grants Shopify's business high switching costs. So, Shopify has a competitive advantage and plenty of white space in the industry.
There are arguments against investing in the company, though. One of them is profitability. Shopify has not really delivered green on the bottom line, at least not consistently. But it should make progress on that front, especially since it ditched its expensive and low-margin logistics business. Shopify's margins have been moving in the right direction since. In the second quarter, the company's revenue increased by 21% year over year to $2 billion. Its gross margin was 51.1%, better than the 49.3% reported in the year-ago period.
Shopify's free cash flow of $333 million soared by 243%, while its free cash flow margin of 16% was far better than the 6% it recorded in the prior-year quarter. It also turned in net earnings per share (EPS) of $0.13, compared to last year's loss per share of $1.02. Shopify is closer than ever to consistent profits.
And while the stock looks expensive -- its forward price-to-sales is 11.9, when the undervalued range starts at 2 and below -- given its long-term prospects and excellent position in its industry, it is worth the premium, in my view.
Shopify might not be for everyone, but it looks like an excellent option for growth-oriented investors willing to hold the stock for five years or more. Shopify's shares are currently worth just under $81 each.
2. Exelixis
Exelixis is a mid-cap biotech that carved out a niche in the competitive oncology market. The secret to the company's success is Cabometyx, a cancer medicine that continues to impress. Cabometyx is the top-prescribed therapy of its type in renal cell carcinoma (kidney cancer). It is also approved for several other types of cancer, including liver.
Cabometyx's sales continue to grow. In the second quarter, Exelixis' total revenue jumped by 35.6% year over year to $637.2 million. If you only consider sales of its crown jewel, Exelixis reported U.S. sales of cabozantinib (Cabometyx's generic name) of $437.6 million, up almost 7% year over year.
Its EPS of $77 increased significantly compared to the $0.25 reported in the year-ago period. Exelixis is looking at more label expansions for Cabometyx. It is awaiting a regulatory decision in the U.S. for the medicine in treating advanced neuroendocrine tumors. Exelixis is also planning to submit an application to regulators for Cabometyx in treating castration-resistant prostate cancer in combination with Roche's Tecentriq.
That's besides other clinical trials in which Cabometyx is being evaluated. Exelixis should continue grinding out indications for its crown jewel. The company is also looking to develop other cancer medicines that will hopefully be nearly as successful.
The company is running phase 3 studies for a new product, zanzalintinib, including in treating colorectal cancer -- the second-leading cause of cancer death in the world. That's even though colorectal cancer is highly treatable while still in its early stages. There is an unmet need for medicines that can treat this type of cancer once it has metastasized. That's what Exelixis is going after.
Exelixis has several early-stage programs, too. Most mid-cap biotechs don't generate revenue and earnings growth this consistently, nor do they have a pipeline like that of Exelixis. In fact, some of the biotech's similarly sized peers have no products on the market and are consistently unprofitable. Exelixis' innovative abilities in one of the largest therapeutic areas and consistent financial results make it a stock worth holding on to for a while.
And its shares are just $27 apiece right now.
Should you invest $1,000 in Shopify right now?
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Prosper Junior Bakiny has positions in Exelixis and Shopify. The Motley Fool has positions in and recommends Exelixis and Shopify. The Motley Fool recommends Roche Ag. The Motley Fool has a disclosure policy.
