2 growth stocks that could skyrocket

Want to step into the ground floor of an explosive growth opportunity? Look no further than Zynga (NASDAQ: ZNGA) and Lucky coffee (OTC: LKNC.Y). These companies appear poised for bull races as they revolutionize the mobile gaming and coffee industries. Let’s take a closer look at why they might overload your wallet.

1. Zynga

Zynga is a mobile game company which drives growth by acquiring smaller studios. Trading at $ 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 appears poised for a bull run due to improving fundamentals and rumors of a potential acquisition.

Image source: Getty Images.

The first quarter results were an overwhelming success. Zynga’s strategy of synergizing new assets and development teams into a single platform has led to rapid revenue growth and improved results. Sales jumped 68% to $ 680 million, beating expectations by $ 45 million. This is important because it suggests that the assets acquired from Zynga are performing better than expected.

The company’s net loss also fell from $ 104 million to $ 23 million during the period, beating expectations by $ 27 million.

Management is doubling down on its acquisition strategy by purchasing the Chartboost ad technology platform in May. According to CEO Frank Gibeau, the deal will allow Zynga to apply new advertising tools and algorithms to its game data, which could potentially drive growth. To put that in perspective, Zynga’s advertising revenue grew 108% to $ 123 million in the first quarter, which is 18% of sales.

According to industry analysts at CTFN, a publication that focuses on mergers and acquisitions, M&A talks are intensifying in the gaming industry with companies chasing targets with lower market caps at $ 15 billion (Zynga is worth $ 11 billion). While there is no evidence that Zynga is looking to be taken over by a bigger company, its better-than-expected performance could put it in the crosshairs of an epic combination.

2. Cafe Luckin

Soaring 63% this year alone, Luckin Coffee proves its naysayers (and I was one of them) wrong. Chinese coffee company left for dead comes back to life as it restructures its balance sheet. And the stock’s very cheap valuation means it’s not too late for new investors to embark on this exciting transformation.

In April, Luckin announced a deal to restructure about 60% of its $ 460 million in debt maturing in 2025. The deal will reduce the amount of debt outstanding by swapping a percentage for cash and stocks (32 % and 6% of par respectively). Later that month, Luckin announced a $ 250 million equity investment in two Chinese private equity firms aimed at helping it meet its obligations and continue its business expansion.

Luckin’s fundraising activities could increase the number of shares outstanding, diluting existing shareholders. But it 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 report from the company’s Cayman Islands liquidators, sales increased 39 percent to $ 4.2 billion renminbi ($ 648.3 million) in fiscal year 2020.

With a market cap of just $ 3.5 billion, Luckin is trading at just five times estimated sales for 2020, which is modest for a fast-growing company. The discount is fair since the company is still in receivership. But for investors willing to tolerate uncertainty, the potential rewards are huge.

Risk and reward

Zynga and Luckin Coffee offer impressive long-term prospects due to their rapid growth rates. They could also benefit from short-term catalysts (Zynga is a potential acquisition target while Luckin could emerge from bankruptcy in the coming months). Luckin is great for investors willing to take more risk for greater potential rewards, while Zynga is better for those who want to play more conservatively by betting on a more established business.

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Will Ebiefung owns shares of Luckin Coffee Inc. The Motley Fool owns and recommends shares of Activision Blizzard, Luckin Coffee Inc. and Zynga. The Motley Fool recommends Electronic Arts. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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