2 Top Growth Stocks That Could Skyrocket

Want to get in on the ground floor of an explosive growth opportunity? Look no further than Zynga (NASDAQ:ZNGA) and Luckin Coffee (OTC:LKNC.Y). These companies look poised for bull runs as they revolutionize the mobile gaming and coffee industries. Let’s dig deeper into why they could supercharge your portfolio. 

1. Zynga 

Zynga is a mobile gaming company that drives growth by acquiring smaller studios. Trading for $10.56 per share, the stock has a market cap of just $11 billion — making it a small fry compared to rivals like Activision Blizzard or Electronic Arts, worth $72 billion and $41 billion, respectively. Zynga looks poised for a bull run because of its improving fundamentals and rumors of a potential acquisition. 

Flaming stock chart moving upwards

Image source: Getty Images.

First-quarter earnings were a slam dunk success. Zynga’s strategy of synergizing new assets and development teams into one platform has led to rapid top-line growth and an improving bottom line. Sales surged 68% to $680 million, exceeding guidance by $45 million. This is important because it suggests Zynga’s acquired assets are performing better than expected.

The company’s net loss also narrowed from $104 million to $23 million in the period, beating guidance by $27 million.

Management is doubling down on its acquisitive strategy by purchasing ad-tech platform Chartboost in May. According to CEO Frank Gibeau, this deal will allow Zynga to apply new advertising tools and algorithms to data from its games, potentially boosting growth. To put that in perspective, Zynga’s advertising revenue grew 108% to $123 million in the first quarter, representing 18% of sales.

According to industry analysts at CTFN, a publication that focuses on mergers and acquisitions, M&A chatter is heating up in the gaming industry with companies looking for targets with market caps below $15 billion (Zynga is worth $11 billion). While there is no evidence that Zynga is looking to be bought out by a larger company, its better-than-expected performance could put it in the crosshairs of an epic combination. 

2. Luckin Coffee 

Soaring 63% this year alone, Luckin Coffee is proving its naysayers (and I used to be one of them) wrong. The left-for-dead Chinese coffee shop company is roaring back to life as it restructures its balance sheet. And the stock’s dirt cheap valuation means it’s not too late for new investors to get in on the ground floor of this exciting transformation.

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In April, Luckin announced an agreement to restructure roughly 60% of its $460 million in debt notes due in 2025. This deal will reduce the amount of debt outstanding by exchanging a percentage for cash and shares (32% and 6% of par respectively). Later in the month, Luckin announced a $250 million equity investment from two Chinese private equity firms designed to help it meet obligations and continue its business expansion.

Luckin’s financing activities could increase the number of shares outstanding, diluting existing shareholders. But this won’t necessarily hurt the stock if management uses the funds to create value and maintain growth — which seems to be happening. According to the company’s liquidators report in the Cayman Islands, sales are estimated to have grown as much as 39% to $4.2 billion renminbi ($648.3 million) in fiscal 2020.

With a market cap of just $3.5 billion, Luckin trades at just five times estimated 2020 sales, which is modest for such a fast-growing business. The discount is fair considering the company is still in bankruptcy restructuring. But for investors willing to tolerate the uncertainty, the potential rewards are massive.

Risk and reward

Zynga and Luckin Coffee boast impressive long-term prospects because of their rapid growth rates. They could also enjoy near-term catalysts (Zynga is a potential acquisition target while Luckin could emerge from bankruptcy in the coming months). Luckin is ideal for investors willing to take on more risk for greater potential rewards, while Zynga is better for those who want to play it safer by betting on a more established company.

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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.

View more information: https://www.fool.com/investing/2021/07/17/2-top-growth-stocks-that-could-skyrocket/

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