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Down 70%, I’m buying this growth stock in a heartbeat

Stuart Blair — Tue, 12 Apr 2022 06:04:00 +0000

The rout among growth stocks during the past year can be seen by a look at the Nasdaq index. In fact, over the past five years, the Nasdaq has risen over 128%. But year-to-date, it has fallen around 15%. This bear market has been caused due to the rapid rise of inflation, and recent interest rate rises. But as a long-term investor, I see a lot of potential in several beaten-down growth stocks. This US fintech stock is a prime example.

What is the company?

SoFi Technologies (NASDAQ: SOFI) went public via a SPAC at the end of 2020. Its start as a public company was very strong. In fact, the stock reached highs of nearly $25 in November last year, which was over double its original price. Despite this, the growth stock has now fallen back to below $8, its lowest ever price. This is a 70% decline.

But SoFi has been performing very well. Indeed, in 2021, the company managed to report adjusted net revenues of over $1bn, a 62% rise year-on-year. Further, the company’s members reached nearly 3.5m, an 87% year-on-year rise. This demonstrates that the fintech is growing at incredible rates, and this may be due to its strong business model, which incorporates several different services, including investing and personal loans.

In the same year, SoFi also acquired a bank charter meaning that it will be able to directly lend to customers. This is expected to boost profitability.

Why has SoFi stock fallen?

Considering its many positives, it may seem odd that SoFi stock has fallen back so heavily. But alongside the general sell-off in growth stocks, SoFi has faced several individual headwinds.

Firstly, President Biden has continued to extend the student loan payment moratorium, most recently until 31 August of this year. SoFi also expects this will be extended beyond August. This will affect SoFi due to its student loan refinancing business, which has operated at less than 50% of pre-Covid levels for the past two years. As such, the fintech has lowered revenue guidance for 2022 by $100m to $1.47bn. Adjusted EBITDA guidance has also been lowered to $100m, from previous estimates of $100m. Despite this, both these figures still represent stellar growth from 2021. Further, the moratorium is only a short-term problem, and as a long-term investor, I am not overly worried.

SoFi has traded at extremely high valuations, including a forward price-to-sales ratio of around 20 last November. However, at its current valuation it only has a P/S ratio of under 5, far lower than many other growth stocks. Therefore, I no longer view SoFi stock as overvalued.

Why is this growth stock a no-brainer buy?

I am cautious about buying growth stocks now, due to inflationary issues. But the presence of its lending business, means that SoFi should be able to offset some of these inflationary pressures, as it can lend at higher rates. Further, as evidenced by member growth, it’s a real disruptor in the fintech space. As such, I feel that this dip offers a great time to buy, and I may add more to my portfolio in the next few weeks.

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Stuart Blair owns shares in SoFi Technologies. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

2 beaten-down growth stocks to buy right now

Stuart Blair — Thu, 24 Feb 2022 08:23:52 +0000

The pullback in growth stocks has continued in recent weeks as inflationary pressures refuse to ease. This is adding to fears that interest rates will have to rise significantly, a factor that will increase borrowing costs. Nonetheless, while growth stocks are struggling in the short term, I remain confident in many of their long-term futures. This means that, as a part of a balanced portfolio, I’m continuing to buy them. Here are two I’m particularly keen on.

Latin American e-commerce giant

MercadoLibre (NASDAQ: MELI) released its Q4 results on Tuesday evening, and it offered further evidence of its incredible growth prospects. For example, the company reported net revenues of $2.1bn in the quarter, which was up 73.9% on a currency-neutral basis, and 60.5% in US dollars. This meant that full-year revenues grew to $7bn, over a 75% increase from last year. The company also has a diversified source of revenues, due to both e-commerce and the fintech segment. Fintech performed especially well in the fourth quarter, with revenues rising to $773m, a 70% increase from last year. As banking penetration in Latin America is still quite low, there is certainly room for more growth. These are all very positive signs in growth stocks.

Despite this, I was slightly disappointed to see a net loss of $46.1m, after being profitable over the past few quarters. This loss was mainly attributable to foreign currency losses — a downside of operating in international markets — and major interest expenses due to the company’s large debt pile. But I’m not overly worried as these seem like short-term problems.

As such, I’ll continue to add MercadoLibre shares to my portfolio, especially as the stock remains below $1,000. This means that it currently trades at a price-to-sales ratio of 7, which is historically low for MercadoLibre and below other growth stocks. For a company with such incredible growth, this seems like a bargain.

Another beaten-down growth stock

SoFi Technologies (NASDAQ: SOFI) is another growth stock that piques my interest. In fact, after reaching highs of around $24 last November, it has since fallen back to just $10. This sell-off now seems overdone for these reasons.

Firstly, the fintech has recently acquired a bank charter, meaning that it will be able to directly lend to customers. This should be a major boost for profitability. Secondly, the bank is growing at incredible rates. Indeed, in the Q3 trading update, it announced that it had 3m members, which was a 96% year-on-year rise.

There are certainly risks with the company, however. For example, despite seeing slower revenue growth than MercadoLibre, it trades at a P/S ratio of 8. This may signal that there is further to fall. Further, I was slightly concerned at its recent acquisition of Technisys in an all-share deal worth $1.1bn. Although it is expected that this will create around $80m in cost savings between 2023 and 2025, I was disappointed to see the share dilution and would have preferred the company to use some debt in the deal. I also feel that the deal may have been slightly expensive.

Even so, I have faith in CEO Anthony Noto and think that SoFi can be a real competitor in the fintech space. Therefore, I may add more SoFi shares to my portfolio at its current price.

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Stuart Blair owns shares in MercadoLibre and SoFi Technologies. The Motley Fool UK has recommended MercadoLibre. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The US stock market crash is here! What am I doing?

Stuart Blair — Tue, 25 Jan 2022 07:09:23 +0000

Over the past year-and-a-half, analysts have consistently stated that US tech stocks have been in a bubble. But instead of bursting, the prices of these stocks continued to rise. Some notable examples include Tesla, which reached a $1trn valuation, and Apple, which soared to a $3trn market cap. But recently, this bubble has finally burst. Indeed, the Nasdaq index has fallen 17% from its recent highs, and the S&P 500 has fallen around 10%, reaching correction territory. While this is not as severe as the stock market crash in 2020, they’re still very large falls. Yesterday was a particularly bad day for stocks, due to a mixture of geopolitical tensions and more worries about inflation. But a stock market crash can often be a great time to buy stocks. So, what am I doing with some of the big fallers?

Growth stocks crash

The majority of large fallers have been growth stocks. This is due to worries over inflation, which means that the Fed will introduce several interest rate hikes throughout 2022. The Bank of England has already raised interest rates. This will make it more expensive to borrow, which is particularly detrimental for growth stocks. However, I believe that the stock market crash has left some companies far too cheap, as this issue now seems to be priced in.

One example is SoFi Technologies (NASDAQ: SOFI). SoFi is a fintech that went public via a special purpose acquisition company (SPAC) last year. But despite the share price falling over 50% from its highs of $26, the company’s performance continues to impress me. For instance, in its Q3 trading update, it announced that it had around 3m members, which is a 96% year-on-year rise. Recently, it also received a bank charter, which will allow it to directly lend money to customers. I feel this will entice more customers to use SoFi, while also boosting profitability. Therefore, despite the issues that inflation will cause for the fintech, I think it is a great example of a broken stock but an excellent company. I’m using this mini stock market crash as an opportunity to buy.

The stock market crash doesn’t mean buy everything

Although the stock market crash has led to several bargains, I also believe that some stocks have been rightfully discounted. This means that it’s important to be discerning when picking stocks, especially during such volatility.

For example, Netflix (NASDAQ: NFLX) stock has fallen around 30% over the past couple of days. This has left the stock trading at a price-to-earnings ratio of around 33 which, in comparison to many other growth stocks, does seem relatively cheap. As the shares are now at cheaper valuations than historically, this may allow the shares to recover, especially as some profit growth is still expected for the next financial year.

But I’m slightly worried about its future prospects. Indeed, in its recent Q4 update, there were major signs of slowing subscriber growth. Further, in Q1 next year, Netflix only expects around 2.5m net subscribers, well short of the 4m recruited in the same period last year. This slowing growth is due to the competition in the market, as well as the end of lockdowns around the world. As such, this slowing growth makes Netflix’s valuation hard to justify, and even despite the recent crash, it’s a stock I’m leaving on the sidelines.

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Stuart Blair owns shares in Apple and SoFI Technologies. The Motley Fool UK has recommended Apple and Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.