Investors are still contending with a volatile market environment, but that doesn’t mean great companies have simply faded into the background. Share prices do matter over the long term, but short-term fluctuations shouldn’t drive you to buy or sell stocks.
Even two years of volatility can be considered short-term when you’re investing in stocks for five years or longer. While many investors are still looking at cryptocurrency in the hope of building supercharged returns, there are companies with actual businesses behind them that could generate steadier growth with time. Here are three to consider if you’re looking to add cash to stocks this month.
1. Airbnb
Airbnb (ABNB) shares are up about 40% this year as a series of excellent financial reports bolstered by incredible cash and profits attracted even hesitant investors in a volatile market. And despite how well the stock has done this year, Wall Street analysts are still giving it a 12-month median upside potential of about 21%.
It’s really been a stellar series of quarters for the travel accommodations company, partly due to the resurgence of travel but also because of the wide range of stays customers can book on the platform. Long-term reservations were 18% of the platform’s bookings as of the second quarter, versus 13% of bookings pre-pandemic. And stays of seven nights or more account for about 45% of all bookings on the platform now.
Consumers are spending on experiences after the height of the pandemic, during which most spending was on products, but it’s also true that more people have flexibility with how they live and work than they did a few years ago.
Management has directly attributed some of its growth to the remote-work revolution, and believes the business is positioned to continue capitalizing on this over the long term. In the second-quarter earnings call, CEO Brian Chesky said:
… what I can say with a fair amount of confidence is I think in the next decade, [long-term stays are] going to be a lot higher than 18%. I think the overall wins are toward longer and longer stays. And the reason why is because more than ever in any time in human history, you’ve got hundreds of millions of people — and one day, perhaps more than 1 billion people — that have a job via laptop that has some incremental flexibility that did not exist 10 or 20 years ago.
Second-quarter revenue of $2.5 billion was up 18% from one year ago and 105% from four years ago, while profits totaled $650 million, a net income margin of 26%. The company also boosted its free cash flow (FCF) 13% year over year to $900 million, with its trailing-12-month FCF margin hitting 43%.
This business has so much potential as it evolves to meet the changing needs of the modern traveler that even if an economic crash occurs, the foundation it’s building now could portend solid growth and returns in the years ahead.
2. Chewy
Chewy (CHWY) changed the model of the old school brick-and-mortar corner pet store with its e-commerce platform that meets the full spectrum of animal owners’ needs. Whether it’s food, toys, and bedding for pets, or supplies for horses, goats, and chickens, shoppers will find it on the platform.
The company has a broadly diversified business, including its in-house Vibeful line of pet wellness supplements, an online pharmacy for regular veterinary prescriptions and compound medications, pet insurance, and a telehealth service with a licensed veterinarian.
Most of Chewy’s revenue is recurring: 76% of its net sales in the recent quarter were from its Autoship program, which allows customers to set up recurring monthly deliveries of products. And most revenue and profits come from nondiscretionary sources. In the most recent earnings call, management said that 85% of its net sales were derived from consumables and healthcare spending.
Over the trailing-three-year period, Chewy’s annual revenue rose 41% while operating cash flow jumped 163%. The company generated net sales of $5.6 billion in the first half of 2023, while profits for that period totaled $41 million.
Wall Street analysts give the stock a median 12-month upside of 70% from its current price. That’s despite how hard shares have been hit this year in a volatile market (it’s still down by double digits at the time of this writing). This growth stock looks like a business with a solid trajectory, and tech investors might want to take a second look.
3. Fiverr
Shares of Fiverr International (FVRR) dipped about 30% this year, even as the company has continued to grow steadily and improve its profitability. Part of the reason for the decline could be the broader choppiness afflicting growth stocks. And some investors might be unhappy with the moderated growth Fiverr has reported recently, compared to the height of the pandemic.
The business, however, still seems on solid footing. Fiverr connects freelancers with clients around the world — individuals or small businesses, but often large companies looking to hire teams of freelancers. In an economy that is improving but still not out of the woods, companies are spending cautiously, whether on freelance talent or full-time workers.
Still, they may be more inclined to hire freelance workers than permanent staff in an uncertain economy. This is evident in Fiverr’s moderate but consistent growth, and in the wave of tools and services it has launched in recent months.
These include new artificial intelligence (AI) gig categories, an AI-powered tool that matches buyers and sellers of freelance services — and more solutions for midsize to large businesses that make hiring freelance teams, organizing projects, and providing payments more seamless than ever.
Between 2019 and 2022, revenue had a 47% compound annual growth rate. In the second quarter, Fiverr generated just shy of $90 million in revenue, a 5% increase from one year ago. Its active buyer count was flat year over year at 4.2 million, but nearly double the buyers on its platform just three years ago.
Buyers of freelance services surveyed by Fiverr give it a net promoter score (NPS) of 65, while sellers of freelance services responded with a NPS of 79. For reference, the average business-to-business NPS is in the 30s.
Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) were $15 million in the second quarter, three times higher than one year earlier. Operating cash flow more than doubled year over year.
Analysts give Fiverr a median 12-month upside of about 110% at the time of this writing. Investors with a lengthy buy-and-hold horizon might want to consider putting even a conservative amount of cash toward the business to gain some exposure to the growth of the global gig economy.
— Rachel Warren
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Source: The Motley Fool