Best stocks to trade
Do you want to do better than the market? Choose stocks that are rising in value. In terms of revenue and profit growth, these companies have a track record of exceeding the market. Let’s take a look at why Luckin Coffee (OTC: LKNCY) and Duolingo (NASDAQ: DUOL) are strong buys in October.
The stock of Luckin Coffee, which has climbed 50% since the beginning of the year, appears to be on the mend as investors look to buy more of the company. The Chinese coffee industry, which has been plagued by scandals, is still recovering from the consequences from the 2019 accounting crisis. However, now that sales have risen dramatically, the stock is worth paying more attention to.
In September, the SEC received Luckin Coffee’s annual report for 2020. The filing was postponed due to the company’s continued attempts to restructure and examine the damage caused by past management’s misrepresentation of up to $310 million in sales in fiscal 2019. Despite the fact that the report is about ten months late, it represents a big step forward in Luckin’s standardization efforts, with promising operational results.
Net revenue climbed by 33% to $618 million in the same year, with the contribution from partner stores (Luckin’s equivalent of franchisees) increasing by about 2000% to $49 million. By moving some operating costs and risks to franchisees, Luckin’s new franchise business model (launched in 2019) can help stabilize the company. As of July 31, the company had 1,293 partner stores and 4,030 branded locations.
With a market capitalization of $3.7 billion, Luckin Coffee trades at six times 2020, a low ratio for a fast-growing company. Some “discounting” is required due to ongoing restructuring and delayed files for 2021, but Luckin is on its way out stronger than ever, and early investors may be rewarded handsomely.
Since coming public in July at $102 a share, Duolingo has been on a roller coaster ride, rising to $205 in September before plunging to $145 today. While the language-learning platform has been favorably welcomed, it also offers a big prospective market and a compelling economic plan.
Brandessense experts project that the worldwide language learning market will rise at a compound annual growth rate of 18.7% to $173 billion by 2027, thanks to increased digital globalization and improved technology. Duolingo is positioning itself to take advantage of this opportunity because its free language learning program is more convenient than a classroom or an instructor.
It’s also cost-effective: according to the guidebook, students may learn a language in four semesters, which is half the time it takes at American universities.
Duolingo’s business is unquestionably growing. Revenue climbed by 47 percent year over year to $58.8 million in the second quarter. The number of monthly active users fell by 3% to 37.9 million, however this was due to issues in contrast to 2020, when the epidemic hit and prompted many people to stay at home. Since 2016, Duolingo has already restored its “normal” MAU growth rate of approximately 20%, according to CEO Louis von Ana.
For the entire year, management forecasts $242 million in revenue, implying a price-to-sales ratio of 28. That isn’t exactly a budget-friendly solution. Duolingo, on the other hand, has established itself as a clear leader in the digital language learning business. It also looks to be in the early stages of trying to monetize its user base (which is made up of 96% non-paying members) and the potentially valuable data it collects.
Both Luckin Coffee and Duolingo report high revenue growth and the potential for significant long-term profitability. They are, nevertheless, appropriate for significantly different investment approaches. Luckin Coffee has a lower market capitalization, but owing to restructuring, its future is more uncertain. Duolingo, on the other hand, is a far more expensive stock with a lower legal risk. Both demand a closer look, depending on the investor’s goals and risk tolerance.