It’s easy to ignore beaten-down stocks when the overall stock market is reaching new highs. The benchmark S&P 500 index is trading at 29 times trailing earnings as of mid-July, far higher than its historical median of 17.9 times. However, there are still many undervalued yet high-quality stocks in the market.
Two fundamentally strong companies are now trading at staggering 81% and 88% discounts from their all-time highs, and are operating in fast-growing industries with durable competitive advantages. For investors willing to ignore short-term volatility, these stocks can prove to be exceptional long-term picks.
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Shares of video-streaming company Roku(NASDAQ: ROKU) have declined by almost 80% from their 2021 highs. The company has been facing multiple challenges, including profitability struggles, intensifying competition, stagnant average revenue per user, and overall weakness in the advertising market. However, several powerful secular tailwinds are supporting the company’s growth.
Connected TV (CTV), the fastest-growing segment of the streaming TV industry, is expected to experience a 13% year-over-year growth in global ad spending, reaching $26.6 billion. This bodes exceptionally well for Roku, which accounts for 38% of the U.S. CTV device market share. Furthermore, almost half of all U.S. broadband homes have at least one Roku-powered device. While hardware is a loss-making business, it plays a significant role in active-user acquisition.
More than 90 million streaming households (as of January 2025) use the company’s TV operating system in the U.S. The broad customer base has created a strong competitive moat for its high-margin and recurring platform business. The platform business comprises the ad-supported Roku Channel, home-screen advertising, and subscription revenues.
The Roku Channel is a significant growth catalyst, with 145 million people in the U.S. in the fourth quarter of 2024. The channel also saw an 84% year-over-year jump in engagement (streaming hours) in 2025’s first quarter. Hence, Roku has demonstrated the ability to drive viewership without costly content acquisition.
Roku’s platform business generated $881 million in revenue, up 17% year over year, and a gross margin of 52.7% in Q1, demonstrating sustained momentum following the historic $1 billion platform-revenue milestone in the previous quarter.
The stock is currently trading at 3.2 times sales — more like a hardware company than an exceptionally robust platform player. Considering this disconnect, the stock now appears to be an attractive pick.
Shares of leading augmented reality (AR) player Snap(NYSE: SNAP) are also currently down a staggering 88% from the all-time high in 2021. Investors have been concerned about the company not providing Q2 guidance amid a challenging ad spending environment due to changing regulatory and trade policies, a decline in the number of North American daily active users, increasing competition, and the impact of Apple‘s privacy changes.
Yet, the scale of the drawdown is unjustified, especially at a time when investors are aggressively picking stakes in artificial intelligence (AI)-powered companies. Snap has already successfully integrated generative AI into AR.
Snap’s daily active users reached 460 million in 2025’s first quarter — an increase of 38 million year over year. The company also crossed the 900 million monthly active users (MAUs) milestone, very close to its goal of 1 billion MAUs. With users opening the Snap application over 30 times per day and spending at least 30 minutes daily, the company has managed to build a sticky customer base that may not easily switch to the competition.
Snap’s premium subscription service, Snapchat+, also boasts nearly 15 million subscribers, representing a 59% year-over-year increase. The service also generated nearly $152 million in Q1, representing a 75% year-over-year increase. It has also reached an annualized run rate of almost $600 million. The predictable revenue and high-margin subscription business, especially, stands out in a time when regulators have been tightening privacy regulations, making ad targeting even more difficult.
While technology giants are developing advanced AI hardware to make rapid inroads in AR, Snap has concentrated on building Lens Studio. This highly sophisticated and comprehensive software platform enables artists and developers to build AR experiences. Lens Studio downloads more than doubled year over year, while the AI-powered Easy Lens tool was used to create over 10,000 Lenses (AR experiences) generating 2 billion impressions since mid-December 2024.
Snap is also experiencing dramatic improvements in profitability and cash-generation potential. The company’s adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) surged 137% year over year to $108 million, while free cash flow surged 200% to $114 million in Q1.
Snap trades like a declining legacy platform at just 3 times sales rather than like a growth company with impressive and well-monetized technology. Considering the disconnect between price and fundamentals, the company appears to be a smart buy now.
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Manali Pradhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and Roku. The Motley Fool has a disclosure policy.
