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2 Growth Stocks With 540% Upside (or More), According to Cathie Wood

The popular fund manager sees big gains on the horizon for shareholders of these companies.

Cathie Wood made a name for herself, and her asset management firm ARK Invest, by delivering market-crushing gains in 2020. And while her flagship exchange-traded fund (ETF), ARK Innovation ETF (NYSEMKT: ARKK) is currently 75% off its high, many investors remain enamored with Wood's abilities as a stock picker.

With that in mind, ARK has a 2026 price target of $1,500 on Zoom Video Communications (NASDAQ: ZM), implying 1,260% upside. ARK also has a 2025 price of $375 on Block (NYSE: SQ), implying 540% upside. Should you buy both stocks right now?

Let's dive in.

1. Zoom Video Communications

Zoom operates a cloud communications platform that blends video, phone, webinar, and event management capabilities. Its cornerstone product, Zoom Meetings, ranks as the leading videoconferencing software, according to a recent G2 Grid report. But the company has also seen traction with Zoom Phone, which hit 3 million seats in the first quarter, up from 1 million seats in January 2021.

Zoom rose to prominence during the pandemic, building the type of brand recognition that few businesses ever achieve. While growth has decelerated substantially, that competitive edge has still led to respectable financial results in the past year. Zoom grew its enterprise customer count 26% to 198,900, and the average customer spent 23% more. In turn, revenue rose 29% to $4.2 billion, and earnings jumped 42% to $4.12 per diluted share.

Looking ahead, ARK's bull case is built around shifting workplace dynamics. Specifically, ARK estimates that 832 million knowledge workers (excluding China) will engage in remote or hybrid work by 2026, up 70% from 2021. That tailwind should drive demand for Zoom Meetings and Zoom Phone. Additionally, ARK sees artificial intelligence (AI) add-on services as a key contributor to revenue growth. For instance, Zoom recently introduced Zoom IQ for Sales, AI-powered software that analyzes customer interactions in Zoom Meetings to find insights and boost sales team productivity.

Currently, Zoom trades at 7.9 times sales, much cheaper than its three-year average of 41.7 times sales. More importantly, Zoom has established itself as a key player in a crucial industry. With that in mind, this growth stock looks like a smart buy.

2. Block

Traditionally, banks and other merchant acquirers have bundled disparate hardware, software, and payment-processing solutions together, meaning sellers often needed robust IT support to implement and maintain those systems.

But Block has done away with that complexity. Through its Square ecosystem, sellers can provision all the tools they need to manage a business across physical and digital channels. That includes payroll and marketing software, point-of-sale systems, and banking services.

Similarly, Block is working to disrupt the consumer finance industry with its Cash App, a digital wallet that allows users to send, spend, and invest money from a single platform. Cash App users can even file their taxes for free.

Additionally, Block is working to connect and accelerate both ecosystems with Afterpay, a buy now, pay later (BNPL) service acquired earlier this year. Specifically, BNPL boosts transaction volumes and conversion rates for merchants, while also generating consumer shopping data. Sellers can use that information to deliver highly targeted product recommendations through the Cash App. Consumers can also use the Cash App as a deal discovery tool by browsing offers from over 140,000 active sellers.

Financially, Block is growing at a steady clip. Gross profit climbed 50% to $4.8 billion over the past year, and the company generated $965 million in free cash flow, up from a loss of $344 million in the prior year. But managements puts its addressable market at $190 billion in gross profit, leaving plenty of runway for growth.

On that note, ARK's bull case is simple: Block empowers sellers to start, run, and grow a business through its Square ecosystem, offering a superior value proposition thanks to its ability to blend hardware, software, and services. Similarly, Block simplifies money management for consumers with its Cash App. And its ability to acquire transacting customers for about $10 makes it far more efficient than traditional banks, which pay roughly $2,500 to acquire new customers.

Currently, Block trades at 1.8 times sales, near its cheapest valuation as a public company. Given its disruptive business model and massive market opportunity, this beaten-down growth stock looks like a screaming buy.

Find out why Zoom Video Communications is one of the 10 best stocks to buy now

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Trevor Jennewine has positions in Block, Inc. The Motley Fool has positions in and recommends Block, Inc. and Zoom Video Communications. The Motley Fool has a disclosure policy.

Source: The Motley Fool

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