Cathie Wood, the founder of the ARK Innovation ETF (ARKK), is well-known for her investment strategies, especially her emphasis on disruptive innovation. Her unique approach identifies companies that are or will be at the forefront of disruptive innovation. Her portfolio includes stocks from emerging sectors that have the potential to significantly outperform the overall market if the technology or innovation they are developing succeeds.
In this article, we'll look at three such growth stocks - Roku (ROKU), Block (SQ), and Intellia Therapeutics (NTLA) - that hold a place in the ARK Innovation ETF, highlighting Wood's belief in their long-term viability.
Currently, ROKU holds a place in the top three holdings of ARKK with a 7.7% weight, while Block and Intellia account for 5.5% and 3.3%, respectively. Let's see if these three growth stocks are good buys right now.
#1. Roku
Roku (ROKU) has become a household name in the streaming world. It offers streaming devices and a platform for aggregating content from various providers.
Despite its positive first-quarter results, the stock has fallen 40.6% year-to-date, compared to a 14.2% gain for the S&P 500 Index ($SPX).
The company's net revenue increased 19% year-on-year to $882 million, exceeding consensus estimates. Roku's platform revenue, which includes streaming service distribution, sponsorships, and video advertising, increased 19% to $755 million, while device revenue from Roku-branded televisions increased 19% year on year. The company reported a third consecutive quarter of positive adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) and free cash flow (FCF).
Roku's active user base continues to grow, reaching 81.6 million at the end of the first quarter. Management expects $935 million in revenue in the second quarter, while analysts predict $937.7 million. Over the last two years, Roku has only missed one quarterly revenue estimate.
While the company anticipates adjusted EBITDA of $30 million in Q2, management believes that "normal seasonal spend in Sales & Marketing for Devices" could result in adjusted EBITDA that is moderately higher than the first half of the year. Furthermore, the company is confident that platform revenue, adjusted EBITDA, and FCF growth will accelerate in 2025 and beyond.
Management expects to achieve this goal by “expanding monetization of the Roku Home Screen, bolstering programmatic ad capabilities, and growing Roku-billed subscriptions.”
Analysts predict that Roku's revenue will rise by 12.5% to $3.9 billion in fiscal year 2024, and by another 11.9% in 2025. While Roku remains unprofitable, consistent revenue growth could help the company see green on its bottom line.
Overall, Wall Street rates the stock a “hold.” Out of the 24 analysts covering Roku stock, seven have a “strong buy” recommendation, one suggests a “moderate buy,” and 12 call it a “hold.” The stock has also received one "moderate sell" and three "strong sell" recommendations.
ROKU's average analyst price target is $74.78, implying a 37.3% upside. Furthermore, the Street's high target of $105 suggests that the stock could rally by up to 92.8% from current levels.
#2. Block
The second stock that has earned a place in Wood’s portfolio is the multifaceted fintech company Block (SQ). Over the years, it has expanded its offerings to encompass a broad range of financial services and technologies.
Valued at $38.8 billion, Block stock has fallen 16.7% YTD, compared to the broader market's gain.
Its ecosystem is dominated by its two platforms. Cash App is a peer-to-peer payment service that provides services such as direct deposit, stock trading, and Bitcoin transactions, whereas Square offers point-of-sale solutions, business loans, and other financial products and services.
In the first quarter of 2024, Cash App's revenue and gross profit increased by 23% and 25% year on year, respectively, while Square's revenue and gross profit increased by 11% and 19%. Notably, the company's strategic efforts to improve each segment have helped it retain and grow customers. Overall inflows in the Cash App increased 17% to $71 billion in the quarter. This exceptional growth across its segments resulted in a net income increase of $472 million, up from $98 million in the year-ago quarter.
The company continues to expand the functionality of Cash App and Square and integrate additional financial products such as TIDAL and Bitcoin to create a comprehensive financial ecosystem.
Management expects a gross profit of $8.78 billion and adjusted EBITDA of $2.76 billion in 2024, up 17% and 54.2% from 2023, respectively.
In 2024, analysts predict Block's revenue and earnings will increase by 14.4% and 89%, respectively. Furthermore, revenue and earnings are expected to increase by 11.6% and 27.7%, respectively, in 2025. Block, valued at 18 forward earnings, is a reasonable buy given the outstanding growth prospects in the evolving digital finance industry.
On Wall Street, Block is rated a “strong buy.” Out of the 36 analysts covering SQ, 25 have a “strong buy” recommendation, two say it's a “moderate buy,” eight rate it a "hold,” and one recommends a “strong sell.”
The analysts' average price target of $88.64 implies a potential upside of about 37.6%. Its Street-high estimate of $110 suggests the stock could potentially rally by 70.8% in the next 12 months.
#3. Intellia Therapeutics
Intellia Therapeutics (NTLA) is a clinical-stage biotech company focused on developing CRISPR/Cas9-based therapies to treat genetic diseases.
CRISPR/Cas9 gene editing, which allows for precise DNA modifications, serves as the foundation for the company's technology. Intellia's pipeline includes therapies aimed at various genetic disorders, cancers, and other auto-immune diseases, with an emphasis on both in vivo (directly within the body) and ex vivo (outside the body) applications.
Valued at $2.3 billion, Intellia stock has dropped 18% YTD compared to the broader market.
In the first quarter, Intellia provided updates on its ongoing clinical trials. The company currently has no approved product, but it reported $28.9 million in revenue from collaborations and licensing agreements.
The company has begun enrolling patients in the Phase 3 MAGNITUDE clinical trial of NTLA-2001 to treat transthyretin (ATTR) amyloidosis with cardiomyopathy. Furthermore, Intellia plans to launch another separate trial for NTLA-2001 by the end of 2024 to investigate the treatment of hereditary ATTR amyloidosis with polyneuropathy.
By the second half of 2024, the company expects to start Phase 3 study of NTLA-2002 for the treatment of hereditary angioedema (HAE), following the presentation of topline results from Phase 2 in mid-2024.
Intellia, like many other biotech companies in the development stage, has yet to achieve profitability. The company reported a net loss of $107.4 million in the first quarter, reflecting a significant increase in clinical trial R&D (research and development) investments to $111.8 million.
The company's total cash position (cash, cash equivalents, and marketable securities) stood at $953.4 million at the end of the quarter.
According to management, the company has "one ongoing and two soon-to-be-initiated pivotal Phase 3 trials." While this is undoubtedly good news, investors should be aware that biotech stocks are risky because clinical trials may fail or final approval may take some time. Furthermore, once approved and commercialized, the drugs may take years to generate consistent revenue and profits. Therefore, investing in biotech stocks will require a lot of patience.
That said, it's not surprising that Intellia has earned a place in Wood's portfolio. Cathie Wood focuses on stocks with long investment horizons and high growth potential. As the field of gene editing evolves, Intellia's efforts could pay off in the long run.
On Wall Street, Intellia stock is a “strong buy.” Out of the 26 analysts covering NTLA, 18 have a “strong buy” recommendation, two suggest it's a “moderate buy,” and six rate it a “hold.”
The analysts' average price target of $72.26 implies the stock could potentially rally by 189% in the next 12 months. Plus, the Street-high price estimate stands at $144.
