Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.
Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.
Motley Fool Issues Rare “All In” Buy Alert
You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More
Many cryptocurrencies crashed over the past few months as inflation, rising interest rates, and other macroeconomic headwinds drove investors toward safer assets. This ugly wipeout probably won’t end until most of the weaker “altcoins” have been purged from the market.
Therefore, I believe investors should buy out-of-favor growth stocks — which have a lot more potential to bounce back over the long term — instead of beaten-down cryptocurrencies in this challenging market. These three tech stocks deserve to be on your shopping list: Snap (SNAP 2.07%), The Trade Desk (TTD 5.71%), and SentinelOne (S 8.80%).
Image source: Getty Images.
Last February, Snap claimed it could generate about 50% annual revenue growth for “the next several years.” But over the following quarters, Apple‘s (AAPL -2.46%) privacy update on iOS unexpectedly throttled Snapchat’s growth and raised some troubling questions about its ambitious goals.
Those concerns, along with the broader sell-off in tech stocks, caused Snap’s stock to plummet more than 70% after hitting an all-time high last September. However, I believe Snap looks like a compelling investment after that steep drop for three simple reasons.
First, it’s still growing like a weed. Its revenue rose 64% to $4.1 billion in 2021, and analysts anticipate 33% growth this year. It ended the first quarter of 2022 with 332 million daily active users (DAUs), representing 18% growth from a year ago, and its average revenue per user (ARPU) improved by 17%.
Second, it’s already tackling Apple’s changes with new ad-tracking services like Snap Pixel. Lastly, its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) — which turned positive in 2020 and rose nearly 14 times in 2021 — is still expected to grow 19% this year.
That stable growth makes Snap a compelling buy at just seven times this year’s sales — even if it faces near-term competitive headwinds from ByteDance‘s TikTok and Meta Platform‘s Instagram.
As the world’s largest independent demand-side platform (DSP) for digital ads, The Trade Desk helps ad agencies, advertisers, and trade desks to bid on existing ad inventories. It sits on the opposite end of the ad supply chain as sell-side platforms (SSPs) like Magnite, which helps digital media owners manage their own ad inventories.
The Trade Desk’s revenue rose 43% to $1.2 billion in 2021, and analysts anticipate 33% growth this year. It expects most of that growth to be driven by connected TV (CTV) ads, which will benefit from the death of traditional linear TV services and the secular growth of streaming video services.
The growth of its CTV business will also likely offset the slower growth of its mobile and desktop-based advertising businesses, which are both maturing and vulnerable to privacy-related changes. It also expects Solimar, the upgraded version of its main platform, to drive higher engagement rates over the long term by collecting and analyzing more data for its advertisers.
The company’s profitability is also improving: its adjusted EBITDA surged 77% to $503 million in 2021, and analysts expect 23% growth this year.
The Trade Desk’s stock isn’t cheap at 16 times this year’s sales, but it’s still one of the best long-term plays on the growing ad tech and CTV markets.
SentinelOne went public as the highest-valued cybersecurity IPO ever last June. It claims its AI-powered Singularity platform, which automatically processes data from virtual appliances and cloud services, is more efficient than other traditional cybersecurity services which rely on human analysts.
Its shares started trading at $46 on the first day, more than 30% above its IPO price of $35, and hit an all-time high of $76.30 last November. But today, it trades at about $23.
SentinelOne was a victim of its overheated valuation. At its peak, the company was valued at 55 times its estimated sales for fiscal 2023 (which ends next January). But today, that price-to-sales ratio has cooled off to 18.
That valuation is reasonable relative to its growth: Its revenue surged 120% to $204.8 million in fiscal 2022, and it expects 79% to 81% growth this year. Its number of customers grew 70% year over year to 6,700 at the end of fiscal 2022, and its dollar-based net revenue retention rate has remained between 120% to 130% over the past four quarters. Its adjusted gross margins have also consistently expanded since its public debut.
SentinelOne is still unprofitable, but it could start to narrow its losses as it reins in its stock-based compensation and economies of scale kick in. It’s also more speculative than Snap or The Trade Desk, but it could still have a lot of room to run as new cyberattacks and data breaches prompt more companies to upgrade their aging cybersecurity defenses.
*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.
Market-beating stocks from our award-winning service.
Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/19/2022.
Discounted offers are only available to new members. Stock Advisor list price is $199 per year.
Calculated by Time-Weighted Return since 2002. Volatility profiles based on trailing-three-year calculations of the standard deviation of service investment returns.
Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool’s premium services.
Making the world smarter, happier, and richer.
Market data powered by Xignite.
