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The market downturn in 2022 has turned into a sustained tailwind.of S&P500 The index rose 20% last year, as fears of a previously absent recession gave way to an official bull market.
But not all long-term winners have a bullish outlook yet, so smart investors should keep an eye out for potentially undervalued growth stocks. right now, fiber international (FVRR -5.57%) and airbnb (ABNB -3.29%) They stand out as two of the best investment ideas in Wall Street’s bargain bin.
Fiverr: A hidden gem at the top of the gig economy
Anders Byland (Fiverr International): In the rapidly evolving gig economy, Fiverr International stands out not only for its resilience, but also for its significant potential for long-term growth. In the vibrant marketplace of freelance platforms, Fiverr’s strategic position and innovative approach pave the way for sustainable expansion, but its modesty has also led to an eyebrow-raising valuation. I’m proud.
Fiverr’s sales have increased by 86% over the past three years. Free cash flow has increased five times over the same period. But Wall Street market makers ignored these healthy business trends. Rather, Fiverr’s recent stock price movement has been inspired by the company’s negative earnings and the deeply misguided belief that the end of the COVID-19 pandemic will spell an end to the company’s growth.
That means long-term Fiverr shareholders have taken a 90% haircut over three years. Recently, the stock price has been trending at a modest valuation of 3.4 times sales, 19 times free cash flow, and 14 times expected earnings. Yes, the same Wall Street experts who have scoffed at Fiverr’s cash-based success in recent years have changed their minds by making absolutely bullish revenue projections for 2024.
It’s about time. I am inspired by the company’s constant pursuit of innovation. From the launch of Fiverr Enterprise, designed to streamline the way companies engage with freelancers, to the introduction of AI-driven tools like the Fiverr Neo chatbot, the platform has built a dynamic user base around the world. Continuously upgraded to meet your needs. These advances not only improve the user experience for both buyers and providers of freelance services, but also expand their market reach. Like any typical high-tech growth legend, Fiverr is laying the foundation for future revenue streams in a deep layer of research and development.
Fiverr’s modest valuation, solid growth outlook, and strategic innovation make it a compelling case for growth investors. In a changing world that increasingly values flexibility and digital solutions, its growth blueprint looks built specifically for the opportunities ahead. This gem of the gig economy is shining brightly, even if mass market investors haven’t noticed it yet. For those on the lookout, Fiverr offers a great opportunity to invest in a flexible future of work.
Airbnb stock still has great long-term potential
Keith Noonan (Airbnb): While the overall market may not be in this stock’s favor at the moment, Airbnb continues to grow its revenue at a solid double-digit percentage and post impressive profit margins. Fourth quarter sales were $2.2 billion, an increase of 17% from the same period last year. This performance pushed the company’s full-year revenue to $9.9 billion, an 18% increase over 2022. Meanwhile, the business ended the year with free cash flow of $3.8 billion (39% of total sales for the period).
Despite the strong performance, Airbnb’s stock actually fell shortly after the company released its fourth quarter results. The travel specialty company’s stock price is still down about 32% from its high.
The company’s market capitalization is approximately $95 billion, valued at approximately 25 times free cash flow. This is still a growth-dependent valuation, but I think it will start to look cheap over time.
The rental leader currently has more than 5 million real estate hosts on its platform and 7.7 million real estate listings worldwide, but the business still has room to grow in the long term. There are many. Airbnb is moving to accelerate adoption in countries where the business is still in its early stages. Management also indicated that the company is preparing to expand into new service categories.
It would not be surprising if the company starts offering flight bookings, car rentals, and other travel-related services through its platform. This could allow Airbnb to offer discounted bundle pricing, which would be a big draw for users.
Importantly, Airbnb has a strong brand, best-in-class technology resources, and a large global user base. These foundations should help companies bridge into new business areas. The business also has a strong balance sheet, with zero debt and $10.1 billion in cash and equivalents on its books at the end of last year.
Airbnb’s business is performing well and there is a bigger opportunity than its stock price reflects, and investors can take advantage of that disconnect.
Anders Bylund has a position at Fiverr International. Keith Noonan has positions at his Airbnb and Fiverr International. The Motley Fool has a position in and recommends Airbnb and Fiverr International. The Motley Fool has a disclosure policy.
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