3 Top Growth Stocks to Buy Right Now – The Motley Fool

There’s no question that 2022 has been a rough year for growth stocks so far. The Vanguard Growth ETF has fallen 34%, even worse than the S&P 500‘s 24% loss, as higher interest rates, fears of a recession, and bloated valuations during the pandemic have combined to send the sector spiraling.

However, there is some good news for investors. The market’s reaction to the September CPI report indicates that a bottom could be near, and when it happens, growth stocks are likely to rally ahead of the broad market. Here are three that look especially promising today.

1. Airbnb: Transforming the travel industry

A lot has changed for Airbnb (ABNB -3.10%) in just a few years. After the pandemic forced the home-sharing leader to lay off a quarter of its workforce, the company found financial discipline and has significantly streamlined its business. 

As a result, it is a profit machine today, far from its cash-burning days as a start-up. In its most recent quarter, revenue jumped 58% to $2.1 billion, and it posted a GAAP net income of $379 million, giving it a profit margin of 18%. Even better, the company’s free cash flow was $795 million, or a margin of 38%. Airbnb has spent almost nothing on capital expenditures this year, a sign of the business’s scalability and market dominance, meaning it can essentially keep all of its operating cash flow, a rare luxury for a business.

In addition to the impressive recent results, there are several other reasons why the stock looks primed for growth. The travel industry is booming as pandemic restrictions have finally loosened, and that recovery tailwind should continue for at least the next few quarters. With a dominant market share in home-sharing, Airbnb should be able to capture much of those tailwinds and convert them into profits.

Finally, the stock looks well-priced considering its growth rate, with a price-to-earnings ratio of 61.

2. Pinterest: An overlooked rebound opportunity

Pinterest (PINS -3.83%) was one of a number of pandemic winners that have since fizzled out. Interest in the image-discovery engine benefited from the large increase in stay-at-home time. But its user base has since declined over the last year, after revenue growth — and the stock price has plunged.

However, there are signs that Pinterest could be mounting a turnaround. According to data from Sensor Tower, time spent on the platform rose 11% in August, its best performance in at least a year. And its new invite-only collage-making app, Shuffles, also seems to have quickly found an audience, getting 338,000 installs on iOS in August, the first month it was available.

Elliott Management, an activist investor, has also taken a stake in the company with an aim to improve the its monetization or push for a sale.

Despite its recent challenges, Pinterest remains solidly profitable, and digital advertising tends to be a high-margin business at scale. In its most recent quarter, the company reported adjusted EBITDA of $92 million on $666 million in revenue, or a 14% margin.

While headwinds in digital advertising could weigh on Pinterest’s near-term performance, the stock is well-positioned to bounce back when macroeconomic conditions improve, if not sooner.

3. MercadoLibre: A reliable growth engine

Most e-commerce stocks saw growth decelerate considerably this year as they lapped difficult comparisons from the pandemic era, but MercadoLibre (MELI -7.93%) has held strong.

The Latin American e-commerce company continues to deliver rapid growth in both its e-commerce and payments businesses. In constant-currency terms, revenue jumped 57% to $2.6 billion, which included a 26% jump in gross merchandise volume to $8.6 billion and an 84% surge in total payment volume to $30.2 billion.

The company is also profitable with $123 million in net income in the quarter.

Like Amazon, MercadoLibre has used its strength in e-commerce to move into adjacent businesses like payments, logistics, and financing for consumers and businesses, including sellers on its platform.

MercadoLibre also launched a loyalty program that added millions of members in the most recent quarter, further strengthening its competitive advantage.

With the stock down 60% from its peak last year, MercadoLibre has a lot of upside potential as the Latin American middle class expands and the company grows into large addressable markets. A shift in market sentiment could lead the stock to move up substantially.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jeremy Bowman has positions in Airbnb, Inc., Amazon, MercadoLibre, and Pinterest. The Motley Fool has positions in and recommends Airbnb, Inc., Amazon, MercadoLibre, and Pinterest. The Motley Fool has a disclosure policy.