Growth stocks such as Roblox (RBLX) and Sea Limited (SE) delivered stellar returns to investors in 2021. Roblox stock went public in March 2021 and rose close to 40% by the end of the year. Comparatively, Sea Limited stock is up 686% since its IPO in October 2017.

However, shares of both stocks are down about 60% in the past three months. Today, I’ll analyze and compare RBLX and SE to determine which beaten-down growth stock is a better buy at current prices.

Valued at a market cap of $32 billion, Roblox develops and operates an online entertainment platform. Comparatively, Sea Limited is valued at a market cap of $76.7 billion and has multiple business segments that include e-commerce and online gaming.

The bull case for Roblox stock

After increasing sales by more than 100% year over year in each of the first three quarters of 2021, Roblox revenue was up 83% in Q4. Its revenue stood at $569 million while bookings rose by 20% to $770 million. The company’s daily active users were up 33% at 50 million while total hours spent on the Roblox platform grew to 28% to 10.8 billion.

Roblox aims to onboard 1 billion users on its platform which might seem an extremely lofty goal right now. The ongoing pandemic acted as a massive tailwind for Roblox allowing it to grow its base of daily active users aggressively. Right now, investors have raised questions about the company’s ability to grow and monetize its user base.

The number of paid users on the Roblox platform rose to almost 12 million in 2021, up from 9.5 million in 2020. Its base of paying users grew in each of the last four quarters and 89% of the new users are returning payers.

The bull case for Sea Limited

A Singapore-based company, Sea Limited owns Shopee, an e-commerce platform, and Garena, a digital gaming vertical. It is one of the top e-commerce platforms in Southeast Asia and is now gaining traction in Latin America as well. While the e-commerce segment remains unprofitable, Garena’s most popular game Free Fire has managed to offset a part of these losses.

In Q3 of 2021, Sea Limited reported sales of $2.7 billion and a gross profit of $1 billion. Its top-line was up 122% while gross profits surged by 148% in Q3 of 2021. While gaming accounted for $1.1 billion in sales, e-commerce sales stood at $1.3 billion in the September quarter.

While its net losses in Q3 stood at $571 million, Sea Limited’s operating cash flow was robust at $513 million which indicates the losses were driven by non-cash expenses such as depreciation.

The verdict

Roblox is forecast to increase sales by 16% to $3.16 billion in 2022, which suggests its trading at a forward price to sales multiple of 9.22x. Comparatively, Sea Limited stock is valued at a far lower price to 2022 sales multiple of 5.1x. Both the companies still report an adjusted loss but I believe Sea Limited’s lower valuation and higher growth rates make it a better buy right now.Analysts expect Sea Limited’s stock to rise by 105% in the next 12-months, while Roblox stock is trading at a discount of 73% according to consensus price target estimates.

RBLX shares were trading at $47.75 per share on Tuesday morning, down $1.97 (-3.96%). Year-to-date, RBLX has declined -53.71%, versus a -8.58% rise in the benchmark S&P 500 index during the same period.

Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist.

More...