The S&P 500 index has soared to new highs in 2024 and is currently up roughly 18% across the year's trading. Several megacap companies, including Nvidia and MetaPlatforms, have posted incredible gains across the stretch and helped power big gains for the benchmark index. However, it would be a mistake for investors to overlook promising companies that have underperformed the benchmark index.
With that in mind, read on to see why two Motley Fool contributors think Roblox (NYSE: RBLX) and PTC(NASDAQ: PTC) stand out as market-lagging stocks that might just be great buys right now.
Roblox has huge growth potential
Keith Noonan (Roblox): Roblox stock was red-hot during the pandemic, but investors generally cooled on the online game platform and game creation system as economic conditions shifted. Lessening excitement on Wall Street for the broader metaverse trend didn't help either. As a result, the company's share price is down roughly 66% from its high.
Despite the soggy stock performance, Roblox's business appears to be heading in the right direction. While the company's growth has been somewhat uneven over the last four years owing to trends related to the pandemic, Roblox is back to growing its user base, bookings, and revenue at an impressive clip. Crucially, recent momentum appears to support the bull case that the platform still has a long runway for expansion.
In the second quarter, bookings jumped 22% year over year to reach $955.2 million. Meanwhile, revenue was up 31% year over year to $893.5 million. The book growth was powered by new users joining its platform and increased monetization across the user base.
The company closed out Q2 with 79.5 million daily active users -- up 21% compared to the prior-year period. Total engagement hours across its platform increased 24% to hit 17.4 billion, and average monthly unique paying users increased 22% year over year to come in at 16.5 million. Roblox is seeing encouraging trends along overall engagement and player-spending categories.
It's also still in the early stages of leveraging its large and highly engaged user base to grow its fledgling digital advertising business. In addition to adding new users at an impressive clip, the user base of Roblox's platform has also continued to age up. That's a favorable development because advertisers would prefer to deliver ads to older users who tend to have higher spending power.
Roblox has shown that its online gaming and socialization platform has staying power, and its growth story could still be in the very early innings. For long-term investors seeking potentially explosive growth plays, the stock looks like a worthwhile portfolio addition at current pricing levels.
PTC is set to soar given any improvement in the economy
Lee Samaha (PTC): PTC stock is flat across 2024's trading and off roughly 8% from its all-time high. It's a disappointing performance from a company that's actually executing well in challenging end markets. PTC markets software and services that help companies manage how products are designed, made, and maintained.
Based on its key growth metric, namely its annual run rate (ARR) of software, cloud, software as a service (SaaS), and support contracts, the company continues to grow at a low-teens percentage rate. As previously discussed, its ARR drives its long-term cash flow generation. If its churn rate is low and its client retention rate is high, PTC will likely grow its cash-flow generation in the future.
In addition, PTC has an excellent opportunity to cross-sell its software solutions to its existing customers. It can do so because its solutions are part of a so-called closed-loop digital thread in manufacturing. As such, its computer-aided design (CAD) software is digitally connected with its product lifecycle management (PLM) software, as it is with other solutions such as service lifecycle management (SLM) solutions. At each stage of the closed loop, a client can gather and analyze digital information to produce actionable conclusions, which are fed back into the loop.
For example, a PTC customer can use SLM to better predict what components they need to service equipment in the field. Those insights might also encourage changes in production using PLM. Similarly, PLM software can identify issues around component availability or pricing that can lead to product redesign using CAD.
It's a continual iterative process, and the growth in the acceptance and use of web-connected digital analytics can lead to substantive improvements in customer profitability.
That said, spending on PTC's solutions is still subject to budget scrutiny, and the industrial economy remains challenged. Still, its underlying ARR growth rate continues to impress. If it's growing at a low double-digit rate in a weak economy, it's fair to expect a significant pick-up when the economy improves. With Wall Street expecting $1 billion in free cash flow (FCF) in 2026 and the current market cap at less than $20 billion, PTC looks like an excellent value for growth-oriented investors.
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Keith Noonan has no position in any of the stocks mentioned. Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Roblox. The Motley Fool recommends PTC. The Motley Fool has a disclosure policy.
