Growth investing has come back in favor this year. Investors have been bidding up many of last year’s out-of-favor stocks, starting just as the tax-loss selling concluded at the end of 2022. I’ve gone shopping. Have you?

Rover (ROVR) and Coupang (CPNG) are a couple of the stocks that I added to my personal portfolio in January. I have my reasons. Can I share those reasons with you? Let’s take a closer look at two of the stocks that I have already bought in 2023.

Life has been pretty good for pets in recent years. We can start with the trend of humanization for our furry friends. We’ve always loved our dogs and cats, but now many of us are treating them as if they’re really part of the family. It’s not just therapy dogs or service animals out in public during social outings now.

We’re also moving away from dry kibble to fresh foods. We’re feeding family, after all. The humanization of pets was already underway, and then the pandemic happened. We were stuck at home. We wanted companionship. Pet adoptions took off like a leash-free greyhound at a dog park.

There are a few publicly traded companies cashing in on how we’re spoiling pets these days. One popular platform that a lot of pet owners may not even realize has hit the market is Rover. This is the leading app and website for matching dog and cat owners with local petsitters, dog walkers, and boarding providers. Oh yes, the gig economy. That’s another trend that should take Rover out of the doghouse and into the market’s wheelhouse.

Rover was hoping to go public a few years ago, but then the pandemic happened. With COVID-19 shutdowns, we were home a lot. We no longer needed to pay someone to come check on our cats or take our dog for a walk. Forget about needing someone to watch our pets when we traveled without them. Our home was our hotel.

Rover revenue had risen a respectable 33% in 2019 only to plummet by 49% in 2020. A traditional IPO was going to be hard to pull off. Rover chose to quietly team up with a special purpose acquisition company (SPAC) in 2021, raising $325 million without a lot of fanfare. Revenue more than made back what it lost in 2020, soaring 125% for all of 2021.

The year-over-year comparisons have normalized now, but Rover still came through with a 45% top-line increase in its most recent quarter. It’s turning the corner of profitability right now, and with an asset-light model the bottom-line gains could be explosive with this scalable business. With companies calling workers back into the office and folks traveling again, the dinner bell is ringing for Rover.

Rover has a cash-heavy balance sheet and trades at an enterprise value of just three times its trailing revenue. Offering pet owners a world of vetted and community-reviewed local pet lovers embracing a role as service providers in this gig economy makes sense on both ends of the transaction.

Grab your passport. We’re going to South Korea. Coupang is the leading online retailer in that tech-savvy and connected country. Most people think of e-commerce as a bare-bones warehouse shipping all over the world, but Coupang has already put in the heavy lifting of building out more than 100 fulfillment centers.

Bricks and mortar may seem old-school for an e-tailer, but it’s also a moat for Coupang. Its warehouses place it within seven miles or a 10-minute drive of 70% of the South Korean population. It has a fleet of drivers that do most of their work overnight. Place an order by midnight, and it will be on your front porch or at your apartment door by 7 a.m., and it’s just as easy to reverse the process if you need to send something back.

Unlike Rover’s, Coupang’s popularity naturally exploded at the beginning of the pandemic in 2020. Revenue growth has gone on to decelerate dramatically, but this is where I see an opportunity.

The $5.1 billion in net revenue that Coupang delivered in its latest quarter is just 10% higher than a year earlier on a reported basis. In local currency, it’s actually a heartier 27% increase, a more accurate measuring stick in this case. The company is also just turning profitable. The $91 million in net income it posted for the third quarter is a record profit for Coupang.

Like Rover, Coupang hit the market in 2021. It was able to go the traditional IPO route, but it’s trading for less than half of its $35 debut price. That doesn’t seem right or fair. Coupang is serving 18 million active customers, roughly half of the South Korean online shopping audience. It’s in the right place at the right time. I hope I can also eventually say that about my stock purchases this year.

— Rick Munarriz

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Source: The Motley Fool