Technology investors have enjoyed some big gains over the past year, but some are starting to get anxious. Fears that higher bond yields and more government stimulus could ultimately lead to inflation have spooked some investors who have put their money in high-growth tech stocks during the pandemic.
But the recent heavy sell-off in technology should not worry long-term investors. The drop is a great buying opportunity if you know where to look. We’ve asked quite a few Motley Fool contributors about a few great contributors Technology stocks Buy it now, and Shopify (New York Stock Exchange: Department Store)And the Lemonade (New York Stock Exchange: LMND), And the Octa (Nasdaq: Octa) Topped their list. Here’s why.
Throwing the baby in the bath water
Danny Vienna (Shopify): With all the market frenzy we’ve seen over the past two weeks, it’s hard to tell if this is just a sector rotation from tech stocks to pandemic reopening plays, or if we’re about to get into a full game. Market breakdown. “A rose by any other name has a sweet scent,” or so the saying goes.
Investors sell both the good and the bad companies, or get rid of the baby with bath water. This creates some convincing deals for companies in the tech sector. One of the stocks that investors should buy right now is Shopify.
When the e-commerce company announced its fourth-quarter results in mid-February, the numbers that marked most of the past year showed no signs of slowing down. Revenue of $ 978 million grew 94% year-over-year, while its total merchandise volume (GMV) – or the value of products sold on its platform – rose 99% to more than $ 41 billion.
These numbers were driven by subscription revenue that increased by 53% and merchandise solutions that increased by 117%. Meanwhile, monthly recurring revenue grew 53% to $ 83 million, driven by the large number of merchants who continued to join Shopify, even after a record influx in the third quarter.
The company’s increased financial leverage started, as net income for the quarter grew to $ 124 million, up from $ 0.8 million in the previous quarter. This resulted in earnings per share of $ 0.99, up from $ 0.01. This shows that as Shopify continues to add more merchants and increase the value of those sales, an increasing amount of revenue will decrease to the bottom line.
It is important to note that although the increasing adoption of e-commerce that has accompanied the epidemic may slow, it will not go away. The US Commerce Department reported that in the fourth quarter of 2020, online sales grew 32% year-over-year, and accounted for roughly 16% of the total. Retail. Now that consumers are accustomed to the ease and convenience of shopping online, there is simply no turning back.
With Shopify down by more than 23% from its recent gains, the stock looks quite cheap by comparison, giving investors the opportunity to land a first-class company at a rare discount.
Is the market sour because of this sweet confusion?
Brian Withers (Lemonade): Lemonade is approaching the established insurance industry with its AI-powered customer service model and chatbots. Customers love that they can get quotes on insurance products (pets, renters, and homeowners) in as little as two minutes and a third of the claims are paid instantly. But it goes even further by allowing its members to choose a charity to take advantage of unused premiums that have not been paid for claims at the end of the year.
This innovative model that puts the customer first is to gain market share. Their “effective premiums,” or the sum of annual premiums in effect at the end of the period, grew by 87% year-on-year. Customers grew 56% over the same time period, while the premiums paid annually per customer increased by 87%, and the overall loss ratio is improving. Even the quarterly comparisons are strong in the midst of the ongoing pandemic.
Fourth Quarter 2019
Fourth Quarter 2020
In strength premium
$ 114 million
$ 189 million
$ 213 million
$ 1 million
Premium for each client
Total loss ratio
The company appears to be shooting all cylinders. So why is the stock 50% down from its highest level earlier in the year? there are many reasons. First, tech stocks have been hit hard in the past few weeks, giving up some staggering gains over the past 12 months. Second, actually reported revenue decreased 13% year-over-year to $ 20.5 million. This may be confusing to investors, but management has made clear that due to changing its business model on July 1, 2020, to use proportional reinsurance, this year-on-year revenue comparison is “not directly comparable”. Finally, the market may have disappointed as well With a company lookWhich came slightly short of analysts’ expectations. Add all of this, and smart investors will see a stock up for sale today.
In general, the company executes its strategy well, earns customers, increases its offerings, and captures market share. Better if investors take advantage of today’s reduced share price with the mindset of holding it for the next three to five (or more) years. You will be glad you did.
Ignoring the noise, this technology stock is still growing rapidly
Chris Niger (Octa): Okta, an Identity and Access Management (IAM) company, has seen exceptional growth in 2020, and investors have responded by increasing the company’s share price. Up 120% last year. But the company’s share price fell recently after Okta announced its fourth-quarter results of 2021.
Investors pushed the stock down nearly 10% earlier this week, but the selling was kind of overreacting. The company reported a 40% year-on-year increase in revenue in the quarter to $ 234.7 million. This is still a very impressive growth and there will likely be more of where it came from. Okta management said its full-year fiscal year 2022 revenue will jump 30% at the top of its guidance.
Investors were also concerned that Okta had just spent $ 6.5 billion buying Auth0, the cloud identity startup. But the acquisition will help Okta expand its identity management business into new platforms and services it does not currently have. Sure, a large amount of money needs to be spent, but it should help the company make more use of the IAM market, which is valued at $ 55 billion.
If investors step back for a moment and stop looking at short-term market volatility, they will see that Octa has had a great year in fiscal year 2021 and is still poised for further growth in the coming year. Moreover, the company’s recent acquisition should cement Okta’s position in the fast-growing IAM market and help the company stay ahead of its competition.
That’s why, for long-term investors, the recent drop in Okta’s stock price looks like a great opportunity to pick up some stocks.
This article represents the opinion of the author, who may disagree with the “official” recommendation position for a premium consulting service from Motley Fool. We are diverse! Asking about an investment thesis – even if it’s our own – helps all of us think critically about investing and make decisions that help us become smarter, happier and richer.