It’s been a rough couple of months being a growth stocks investor. From the growth driven Nasdaq Composite (NASDAQ INDEX: ^IXIC) reached an all-time closing high near 16,000 in mid-November, retreated as much as 22%, briefly putting the index in bear market territory.
Although the moves lower in the generally more volatile Nasdaq Composite can be scary at times, they are also an excellent opportunity to do some buying. Since all notable declines in broad market indices are eventually wiped out by bull market rallies, a bear market is nothing more than a sell-off of high-quality companies for patient investors.
With the Nasdaq off its highs, the following three high-octane growth stocks stand out as screaming buys.
Hosting and Hosting Giant airbnb ( ABNB 1.98% ) is the first fast-paced action to appear. Shares of the company have fallen as much as 39% since mid-November.
What makes Airbnb such an obvious buy is the company’s ability to disrupt both the hotel and travel industries in general.
Most people are familiar with the Airbnb hosting market. Approximately 4 million hosts worldwide place their properties on the platform for guests to book and enjoy. These properties often offer more privacy and are cheaper than traditional hotel rooms, especially when close to big cities. But 4 million hosts are just a drop in the bucket when you consider that there are about a billion households around the world. We are still witnessing the exceptionally early stages of growth for Airbnb’s hosting platform.
As evidence, consider Airbnb’s booking growth before the pandemic. In the three years between the end of 2016 and the end of 2019 (just before the pandemic became widespread), total bookings on the platform increased more than fivefold, from 52 million to 272 million. Nights and Experiences bookings last year exceeded 300 million, and we are still in a pandemic.
Furthermore, long-term stays have recently been the fastest growing segment on Airbnb. A long-term stay is defined as 28 days or more. What this suggests is that mobile workers—that is, those who aren’t tied to a single location and only need an Internet connection to complete tasks—could become the company’s most consistent engine of growth over the next five years.
But Airbnb is about more than just disrupting the boring 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 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 ticks all the appropriate boxes as a screaming buy.
The Nasdaq bear market has also made the fast-growing ad-tech company PubMatic (PUBM) 3.35% ) screaming purchase. From high to low in the last 13 months, PubMatic shares have lost up to 76% of their value.
What I recently discussedSkeptics appear to be concerned about the possibility of multiple valuation compression associated with a rising rate environment, as well as the potential for AppleiOS privacy changes to hurt advertisers. However, none of these concerns should bother patient investors one bit.
The central thesis for buying PubMatic stock is the expectation that ad dollars will continue to shift away from print and towards digital formats, such as mobile, video and connected TV. PubMatic operates a cloud-based programmatic advertising platform for publishing companies, making it a Selling Platform (SSP). In simple terms, SSPs handle optimizing 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 customers’ display space. Rather, its machine learning algorithms select the most relevant content for users. This keeps advertisers happy and should lead to better pricing power for publishers over time.
Additionally, PubMatic built its infrastructure based on the cloud. Because it doesn’t have to rely on third parties, the company’s innovation has translated into 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 growth rate of the industry. While global investment in digital advertising is increasing at a low double-digit average annual rate, PubMatic delivered a 49% organic growth rate in 2021. This small-cap ad tech company is a bargain in every sense of the word.
A third high-octane growth stock that has stood out as a screaming buy during the Nasdaq bear market is cybersecurity company CrowdStrike Holdings (CRWD) -0.62% ). Shares of the company have fallen nearly 50% since peaking in mid-November.
The biggest objection from CrowdStrike skeptics is the company’s valuation premium. With possibly more than half a dozen rate hikes planned for 2022, there is clear concern about company valuation hiring.
However, this concern should take a backseat only because cybersecurity has become a basic necessity in the last two decades. No matter how well or poorly the US economy or stock market is doing, hackers and bots don’t take a day off to try to steal data from consumers and businesses. This creates a baseline level of demand for cybersecurity solutions that will only grow over time as companies move more data to the cloud.
CrowdStrike’s cloud-native Falcon platform has been nothing short of spectacular. Based on artificial intelligence, Falcon monitors around 1 billion events per day. The platform uses these events and its cloud-native origin to quickly recognize and respond to potential threats to end users. Based on constant gross retention rate of around 98%It is clear that customers value the company’s solutions.
What is also impressive is CrowdStrike’s ability to attract new customers, as well as encouraging existing customers to spend much more. Over a five-year period, the total number of subscribers has skyrocketed from 450 to 16,325. That’s a compound annual growth rate of 105%!
But even more important, the percentage of customers purchasing at least four cloud module subscriptions has increased from 9% to 69%. Given that the adjusted gross underwriting margin is close to 80%, these multiple additional purchases from existing customers should dramatically increase CrowdStrike’s operating cash flow over time.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We are motley! Questioning an investment thesis, even one of your own, helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.