It was a tough first half for some investors. If you owned shares of UiPath (NYSE: PAD), Chegg (NYSE: CHGG)And Roku (NASDAQ: ROKU) since the start of 2024, you’re in a world of pain. The three stocks are down between 36% and 74% year to date.
It doesn’t have to stay that way. I think all three stocks have a chance to post meaningful gains in the last six months of 2024. They may not make up the ground they lost in the first half of this year, but even a modest rebound from this modest starting positions can beat the competition. market. Let’s take a closer look at that.
1. UiPath, down 49%
It’s hard to believe that UiPath has roughly halved in size this year. As a leading provider of robotics, automation, and artificial intelligence software solutions, that should be a fertile stock in 2024. Between wage inflation driving up labor costs and companies trying to gain an operational edge, UiPath’s robotic process automation technology platform should be a dinner bell. So far this year, it’s been a fire alarm.
The biggest blow to UiPath came at the end of May after a poorly received quarterly report. Weak guidance and the loss of the second CEO this year were not positive events. Now it’s time to see if the dramatic downgrade here is ripe for a comeback story.
UiPath started the year with a few CEOs. Co-founder Daniel Dines, who served as co-CEO, stepped down in January. His fellow helmsman resigned at the end of May following the brutal financial update after just a few months as sole CEO. Dines agreed to return to the corner office.
Growth has slowed at UiPath. The 16% revenue increase for the first fiscal quarter is about half the year-over-year jump it posted three months earlier. The latest guidance suggests that the top line will continue to slow. The news isn’t necessarily better for the bottom line. UiPath remains profitable on an adjusted basis, but the company is not expected to return to profitability until 2027.
Why should you be optimistic about this in the near term? Well, despite its uninspiring outlook for the rest of 2024, analysts expect revenue to accelerate from 8% this fiscal year to 12% next year. It has a cash-laden balance sheet that shrinks its current market cap of $7.3 billion to an enterprise value of just $5.4 billion. It’s been through some headwinds, but it still topped $100 million in adjusted free cash flow last quarter and has found a way to beat Wall Street’s profit targets in each of the last four quarters. Dines is back, and what a great name to ring the dinner bell again.
2. Chegg, down 74%
The biggest sinker on this list is Chegg. The homework support specialist has been reeling since it was warned that ChatGPT was eating away at its business almost 14 months ago. It sputtered before it stated the obvious. It has posted negative year-over-year revenue growth for eight consecutive quarters. However, those were single-digit declines. The forecast predicts a decline of 12% to 13% in the current quarter.
Chegg knows the job. After all, it’s a pro at study aids. The new CEO who took over last month was the chief operating officer who set the company on a path to embracing AI to avoid disruption long before the market knew there was a problem. Chegg also remains very profitable. It trades for less than 3 times trailing and forward-adjusted earnings. The multiple is still less than 5 if you prefer to use enterprise value rather than market cap. The price-to-free-cash-flow multiple is even lower.
Chegg is a money tree, but has wrongly spent much of that money buying back shares at much higher prices. Last year alone, it spent more than $300 million on buybacks, more than enough to swallow up all of its remaining shares at today’s deeply discounted prices. Last week, the company announced it would cut its workforce by 23%, a move that will help reduce costs as it steps up its efforts to take the lead in AI-powered education tools.
3. Roku, down 36%
Let’s close with Roku. The popular TV streaming enabler is doing well on some fronts. Revenue and user numbers are growing by double digits and engagement has never been higher. However, a lack of profitability, short-term competitive concerns and slow growth in connected TV advertising are weighing on the niche pioneer.
Roku is volatile and has a knack for bouncing back from sell-offs. The stock isn’t likely to return to its 2021 peak anytime soon, but the company has grown much bigger and its reach much broader since then. If recent efforts to prioritize initiatives that deliver strong early returns bear out, Roku will be more than just a four-letter word for investors who got burned in 2024.
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Rick Munarriz has positions at Chegg, Roku, and UiPath. The Motley Fool has positions in and recommends Roku and UiPath. The Motley Fool recommends Chegg. The Motley Fool has a disclosure policy.
3 Stocks That Could Rebound in the Second Half of 2024 was originally published by The Motley Fool
