Growth stocks are often shares of innovative companies in sectors such as technology, healthcare, cannabis, or consumer services, where rapid expansion or disruptive innovation has the potential to drive stock performance. These stocks are ideal for patient investors who can withstand the short-term headwinds that an evolving company faces.

The Walt Disney Company (DIS) and Shopify (SHOP) are two examples of growth stocks with “buy” ratings from analysts. Both companies just reported another strong quarter, making Wall Street optimistic about their long-term potential.

#1. The Walt Disney Company

The Walt Disney Company has long been a force in the entertainment and media industries, enthralling audiences worldwide with its iconic characters, theme parks, and blockbuster franchises.

Disney can't really be called a “pure” growth stock, as it has been in the industry since 1923. However, as the entertainment industry evolves, Disney continues to fight to maintain its position in the highly competitive streaming landscape.

Valued at $206.9 billion, DIS stock has gained 26.9% so far this year, compared to the S&P 500 Index’s ($SPX) gain of 23.7%.

Despite having been in the game for a long time with a legacy portfolio, the competitive streaming landscape, which includes Netflix (NFLX), Amazon (AMZN), and Apple (AAPL), has put pressure on Disney's subscriber growth and retention efforts.

However, under CEO Bob Iger's leadership, Disney has taken strategic steps to regain investor trust. Disney’s growth story is one of adaptation and evolution. Aside from streaming, the company's portfolio includes intellectual property (IP) from Pixar, Marvel, and Star Wars, as well as Disney Experiences like theme parks, resorts, cruises, and more.

In the fourth quarter of fiscal 2024, diluted earnings per share (EPS) increased by an impressive 79%, while revenue increased by 6%, driven by growth in the entertainment segment. At the end of the quarter, the company had 174 million Disney+ Core and Hulu subscribers, as well as more than 120 million Disney+ Core paid subscribers.

For the full fiscal year 2024, revenue increased by 3% to $91.4 billion, while earnings more than doubled to $2.72 from $1.29 in fiscal 2023. 

Disney is also a dividend stock, yielding 1.58% with a forward payout ratio of 33.3%. This implies that its dividends are currently sustainable, with room for future dividend increases. The company intends to align dividend growth with earnings growth in the long run. In addition, it plans to repurchase $3 billion in shares in fiscal 2025. 

Looking ahead, management expects high-single-digit adjusted earnings growth in fiscal 2025 but double-digit EPS growth in both fiscal 2026 and 2027. Analysts predict a 9.3% increase in earnings in fiscal 2025, followed by 11.8% growth in fiscal 2026. 

Overall, Wall Street analysts rate Disney stock as a "strong buy.” Of the 29 analysts who cover DIS, 19 recommend it as a "strong buy," three suggest a "moderate buy," and seven rate it a "hold.”

Analysts have set a mean price target for Disney stock of $125.92, which is 10.2% higher than current levels. Its high target price of $140 indicates an upside of 22.6% over the next 12 months.

Despite the competition, Disney's long-term prospects remain promising thanks to its unparalleled brand strength, extensive intellectual property library, and diverse revenue streams. 

Disney's stock is trading at 20 times forward 2025 earnings and nine times forward sales. Disney is also the less expensive stock to buy right now relative to its peer Netflix, which has a forward P/E ratio of 36x. 

#2. Shopify

With a market cap of $134.1 billion, Shopify has transformed the e-commerce landscape by enabling millions of businesses around the world to set up online stores using its platform.

Investors and analysts are optimistic about the company's consistent revenue growth, which is driven by subscription-based services and merchant solutions. Shopify's stock is up 34% year-to-date, outpacing the broader market.

After a period of slowdown in the post-pandemic market, Shopify's growth rate has picked up in recent quarters.

In its most recent third quarter, Shopify reported 26% revenue growth to $2.1 billion, highlighting resilience amid the global e-commerce slowdown. Gross Merchandise Volume (GMV) also increased 24% year-over-year, driven by increased merchant adoption and enhancements to the platform's capabilities with artificial intelligence (AI). Q3 also marked the company's sixth consecutive quarter of revenue growth of more than 25%, excluding its logistics operations.

While revenue growth remains robust, Shopify's high reinvestment rate in innovation and infrastructure has yet to put it on track to sustainable profitability. This is not unusual for a growing stock. However, in the third quarter, net income came in at $828 million, compared to $718 million in the year-ago quarter.

The company generated $421 million in free cash flow (FCF), representing an FCF margin of 19%. Management expects revenue growth to be in the mid- to high-twenties percentage rate in Q4, while the free cash flow margin could be around 21%. Shopify continues to attract small and medium-sized businesses (SMBs) searching for low-cost e-commerce solutions.

Analysts covering Shopify stock expect revenue and earnings to increase by 24.5% and 79% for the full year 2024. Revenue and earnings could further increase by 22% and 15.3% in 2025.

Shopify is now valued at 12 times forward 2025 estimated sales, compared to its five-year historical average of 23.4 times sales. Shopify's stock remains an appealing growth story for long-term investors. Its strong brand reputation and innovative use of AI and machine learning position it well to capture a larger share of the e-commerce market. 

After SHOP's robust Q3 performance, Evercore ISI analyst Mark Mahaney maintained his “buy” rating for the stock. The analyst stated, “Despite the high valuation multiples, the premium fundamental trajectory of Shopify’s business, characterized by sustained revenue growth and rising margins, supports the Buy rating.”

Overall, Wall Street rates SHOP stock a “moderate buy.” Of the 44 analysts covering SHOP, 25 rate the stock a “strong buy,” one has a “moderate buy” recommendation, and 18 suggest a "hold.” 

Based on its mean price target of $111.50, SHOP stock has an upside potential of 5.1% from current levels.  Plus, its high target price of $140 suggests the stock could go as high as 31% over the next 12 months.