It’s been a rough couple of months to be a growth stock investor. Since the growth-propelled Nasdaq Composite (NASDAQINDEX: ^IXIC) hit an all-time closing high near 16,000 in mid-November, it’s retraced as much as 22%, which briefly put the index in bear market territory.
Although moves lower in the generally more-volatile Nasdaq Composite can be scary at times, they’re also an excellent opportunity to do some shopping. Since all notable declines in the broad-market indexes are eventually wiped away by bull market rallies, a bear market is nothing more than a sale on high-quality companies for patient investors.
With the Nasdaq well off of its highs, the following three high-octane growth stocks stand out as screaming buys.
Airbnb
Stay-and-hosting giant Airbnb (ABNB) is the first fast-paced stock that pops out. Shares of the company have dropped as much as 39% since mid-November.
What makes Airbnb such a no-brainer buy is the company’s ability to disrupt both the hotel and general travel industries.
Most folks are familiar with Airbnb’s hosting marketplace. Approximately 4 million worldwide hosts put their properties on the platform for guests to book and enjoy. These properties typically offer more privacy and are cheaper than traditional hotel rooms, especially when they’re near large cities. But 4 million hosts are just a drop in the bucket when you consider there are around 1 billion households worldwide. We’re still witnessing the exceptionally early stages of growth for Airbnb’s hosting platform.
As evidence, consider Airbnb’s booking growth prior to the pandemic. In the three years between the end of 2016 and the end of 2019 (just before the pandemic became mainstream), total bookings on the platform soared more than fivefold from 52 million to 272 million. Last year’s nights and Experiences bookings topped 300 million, and we’re still in a pandemic.
What’s more, long-term stays have recently been the fastest-growing segment on Airbnb. A long-term stay is defined as 28 days or longer. What this suggests is that mobile workers (i.e., those who aren’t tethered to a single location and only need internet connectivity to complete tasks) could become the company’s most-consistent growth driver over the next five years.
But Airbnb is about more than just disrupting the stodgy hotel industry. The company’s Experiences segment has partnered with local experts to take travelers on adventures. The entire travel industry is an $8 trillion addressable market. Airbnb is looking at a variety of ways to capture more of the money travelers spend when booking activities, paying for food, and arranging transportation.
With Wall Street expecting Airbnb to nearly triple its annual sales by 2026, and the company already profitable on a recurring basis, it checks all the appropriate boxes as a screaming buy.
PubMatic
The Nasdaq bear market has also made fast-growing advertising technology company PubMatic (PUBM) a screaming buy. From peak to trough over the past 13 months, shares of PubMatic have lost as much as 76% of their value.
As I recently discussed, skeptics appear to be worried about the possibility of valuation-multiple compression associated with a rising-rate environment, as well as the potential for Apple‘s iOS privacy changes to hurt advertisers. However, neither of these concerns should bother patient investors one bit.
The core thesis for buying shares of PubMatic is the expectation that advertising dollars will continue to shift away from print and toward digital formats, such as mobile, video, and connected TV. PubMatic operates a cloud-based programmatic ad platform for publishing companies, which makes it a sell-side platform (SSP). In simple terms, SSPs handle the optimization of ad placement for display space.
But there are a couple of interesting aspects to this platform. First, PubMatic doesn’t always choose the highest-priced ad to fill its clients’ display space. Rather, its machine-learning algorithms pick out the most relevant content for users. This keeps advertisers happy, and it should lead to improved pricing power for publishers over time.
Additionally, PubMatic built its cloud-based infrastructure. Since it doesn’t have to rely on third parties, the company’s innovation has resulted in scale-based efficiencies, higher margins, and recurring profitability despite still being in its early stages of growth.
Perhaps best of all, the company has crushed the industry’s growth rate. Whereas global digital ad spend is climbing by an average annual rate in the low double digits, PubMatic delivered an organic growth rate of 49% in 2021. This small-cap adtech company is a bargain in every sense of the word.
CrowdStrike Holdings
A third high-octane growth stock that has stood out as a screaming buying during the Nasdaq bear market is cybersecurity company CrowdStrike Holdings (CRWD). Shares of the company fell by nearly 50% since hitting their peak in mid-November.
The biggest objection from CrowdStrike’s skeptics is the company’s valuation premium. With possibly more than a half-dozen rate hikes on tap in 2022, there’s clear concern about the company’s valuation contracting.
However, this concern should take a back seat solely on account of cybersecurity evolving into a basic necessity over the past two decades. No matter how well or poorly the U.S. economy or stock market is performing, hackers and robots don’t take a day off from trying to steal consumer and enterprise data. This creates a base level of demand for cybersecurity solutions that’s only going to grow over time as businesses shift more data into the cloud.
CrowdStrike’s cloud-native Falcon platform has been nothing short of spectacular. Relying on artificial intelligence, Falcon oversees around 1 trillion events daily. The platform uses these events, and its cloud-native origin, to quickly recognize and respond to potential threats to end users. Based on a consistent gross retention rate of around 98%, it’s evident clients value the company’s solutions.
What’s also impressive is CrowdStrike’s ability to bring in new clients, as well as encourage existing clients to spend a lot more. Over a five-year stretch, the total number of subscribers has ballooned from 450 to 16,325. That’s a compound annual growth rate of 105%!
But even more important, the percentage of clients purchasing at least four cloud-module subscriptions has climbed from 9% to 69%. Since adjusted subscription gross margin is near 80%, these multiple add-on purchases from existing clients should dramatically lift CrowdStrike’s operating cash flow over time.
Originally published on Fool.com
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
Sean Williams owns PubMatic, Inc. The Motley Fool owns and recommends Airbnb, Inc., Apple, CrowdStrike Holdings, Inc., and PubMatic, Inc. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.
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