The stock market has experienced significant growth over the past few years. The S&P 500 index is nearing new all-time highs, and several stocks that were hit hard during the 2022 market correction are beginning to recover. Here are two growth stocks that tumbled but are now surging and have the potential to reach new highs in 2025.
1. Alibaba
Alibaba (BABA 5.72%) stands as China’s foremost e-commerce platform. The stock has risen 60% year-to-date following another impressive earnings report for the quarter ending in December. At the current share price of $136, the stock is still valued at a reasonable price-to-earnings multiple, suggesting further gains could be on the horizon for 2025.
Alibaba’s revenue, mainly generated from transaction fees and various merchant services, grew by 8% year-over-year in the latest quarter, thanks to robust performance in its well-known Taobao and Tmall marketplaces.
Additionally, it leads the cloud services market in China, which is also beginning to accelerate. Cloud revenue growth rose to 13% year-over-year, fueled by strong demand for artificial intelligence (AI) services. Alibaba’s cloud operations are a significant growth driver, with management anticipating continued acceleration in growth throughout the year.
With a population of 1.4 billion, China presents vast growth opportunities for Alibaba. Furthermore, the company is witnessing impressive growth in international markets, where commerce revenue surged by 36% year-over-year.
The stock’s forward price-to-earnings (P/E) ratio of 16 has the potential to increase as Alibaba continues to improve its financial performance in the near future. Looking ahead, analysts project an annualized earnings growth rate of 18%, which could double shareholder investments in five years, assuming the stock maintains its current P/E multiple.
2. Roku
Roku (ROKU -4.24%) is a widely used streaming service platform with over 89 million households and counting. While the stock is currently trading below its all-time highs from previous years, it has seen a 22% increase year-to-date and is now valued more attractively.
Roku’s primary revenue stream comes from advertising, enabling the company to offer free content to users while expanding its platform. However, this reliance on advertising poses challenges for achieving high profit margins during economic downturns, which has impacted the company’s ability to generate consistent net income in recent years.
The key factor for Roku’s path to profitable growth lies in scalability. The company has consistently increased its user base at double-digit rates, with viewers spending more time on the platform. In Q4, the number of streaming households rose by 12% year-over-year, and total streaming hours increased by 18%.
Rising viewer engagement is translating into greater ad revenue, with platform revenue in the fourth quarter climbing 25% year-over-year to reach $1 billion. According to GroupM, the connected TV advertising market is poised to hit $38 billion, growing by 20% in 2024, indicating a substantial opportunity for Roku ahead.
Ctucially, Roku’s revenue growth has outpaced operating expenses. Consequently, the company’s operating loss has shrunk over the past year, from $104 million in Q4 2023 to $39 million in Q4 2024. Management now expects to achieve positive operating income for the full fiscal year in 2026.
Consistent growth in platform revenue, coupled with prospects for improved margins, has enhanced investor sentiment toward the stock. With shares currently trading at a favorable price-to-sales ratio of 3.2, investors can look forward to potential price appreciation as the business continues to grow in the coming years.
John Ballard holds positions in Roku. The Motley Fool holds positions in and recommends Roku. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.
