With the Federal Reserve now widely expected to raise its benchmark interest rate by another 75 basis points this month, investors’ hopes that this bear market may end soon appear to have vanished again. As a result of that macroeconomic pessimism, many stocks recently hit new 52-week lows.
However, every previous bear market in the US stock market has been followed by a recovery that eventually saw the indices set new highs and the current dip is likely not to be the exception. Eventually, growth tech stocks with promising long-term prospects should rebound in a big way. That’s why three Motley Fool collaborators think Roku (ROKU 3.29%), Open door technologies (TO OPEN 7.25%)And Adobe (ADBE 2.91%) probably fits that description.
Investors could convey massive growth from Roku
Will Healy (Roku): Roku was one of the biggest victims of the tech industry sell-off. After its shares hit a high of over $ 490 per share in July 2021, it began a sharp and steady decline that would take it to a low of $ 62 per share within about a year.
Investors make a bearish bid for Roku amid a general sale of growth tech stocks. But the economic headwinds also led to pessimism about the near-term future of the advertising market, which further weighed on Roku. These conditions prompted management to forecast revenue growth of just 3% in the third quarter. This is in stark contrast to the company’s results at the start of the pandemic: its top line grew 57% in 2020 and 56% in 2021.
However, none of these negativities change the fact that Roku is likely the future of television. Consumers continue to move away from cable TV in favor of streaming.
During Roku’s first quarter earnings call in April, Roku CEO Anthony Wood cited an eMarketer report that only 18% of TV ad spend went to streaming. From Wood’s point of view, that figure should eventually grow to 100%, because, as he stated at the time, “eventually, all TV and all TV commercials will be streamed.” Roku today claims 31% of the connected TV market, according to Conviva, making it the market leader. Its customer numbers reflect this: in the second quarter, its active account base grew 14% year-over-year to 63 million.
Additionally, Roku’s revenue growth is expected to start bouncing back soon. Analysts expect revenue growth of 13% for this year, an indication that they do not expect the 3% growth forecast for the current quarter to turn into a trend. They also expect revenue growth to increase to 17% in 2023. While these results would not be on par with 2021 levels, they would represent a significant improvement over Q3.
Finally, thanks to the drop in the share price, its price-to-sell ratio has dropped to around 3. At that multi-year low, it’s trading at roughly the same selling multiple as its main North American streaming rival. Amazon. At such an obvious valuation, market leader Roku might be the best streaming title to buy right now.
A digital disruptor in real estate
Justin Pope (Opendoor Technologies): Technology has changed the way consumers spend their money. Ecommerce has impacted everything from buying food to shopping for clothes and other goods. However, when it comes to buying a home – the largest purchase most people have ever made – the processes are still relatively archaic.
Opendoor is trying to change this by offering consumers the ability to buy or sell homes online. Instead of spending time and money staging and displaying their homes, and then bargaining with potential buyers, people can quickly sell their homes to Opendoor via a process that works through its website or smartphone app. Opendoor pays cash for the homes it buys, makes repairs as needed, and then resells them on the market.
The company operates with low profit margins; charges a 5% commission when buying a home. According to the company’s website, it’s not looking to flip houses for profit. Instead, he acts as a market maker, buying and selling lots of homes at around a fair market value and making a profit by making his commissions on every transaction. The appreciation (or depreciation) of the house price and the expenses to hold inventory (such as interest on debt) are all contributing factors to Opendoor’s gross profit margins. Its revenue has grown immensely, but so far the business is not profitable.
The stock fell 87% from its peak. In fact, it now has a market cap of $ 2.76 billion, just $ 250 million more than its balance sheet liquidity. Don’t squirm – there are risks in Opendoor. The company will now have to demonstrate that it can handle a slower housing market and rising interest rates that make lending more expensive. However, investors who buy at this point are almost getting the business for nothing.
The market has practically priced a stock failure at this market cap, which means the benefit could be immense if Opendoor’s business model works over the long term. It is a high risk / high reward stock, so investors should be careful when buying stocks (and make them part of a well-diversified portfolio if they buy them). That said, it’s hard to find an investment idea with the same upside potential as Opendoor if things work out.
A once in a decade discount on a digital power plant
Jake Lerch (Adobe): With the Nasdaq Composite down more than 25% year to date, many previously high-flying stocks have fallen through tough times. Adobe is definitely one of them. It’s down 34% this year and more than 46% from its peak at the end of 2021.
Still, unlike many of the more speculative growth names that have taken their chin this year, Adobe is a long-standing public company with significant revenue and profits. In June, when Adobe reported its second-quarter fiscal earnings, it beat the top and bottom. For the period ended June 3, its revenue was $ 4.4 billion and it produced earnings of $ 3.35 per share. However, stocks plummeted after management lowered its full-year forecast due to negative exchange rate effects.
But exchange rates aren’t a reason to avoid Adobe stock. For long-term investors, what? should matter is Adobe’s place in the digital economy. More than ever, creatives in the marketing, publishing and education industries rely on Adobe products to bring their ideas to life. The company’s Creative Cloud membership includes sought-after tools like Illustrator, Photoshop, and Acrobat that are indispensable for many professionals.
For investors, now may be the time to buy cheap Adobe stock. The stock is currently trading at a price / earnings multiple of 36.5. At first glance, it might seem expensive, but consider Adobe’s 10-year average ratio is a whopping 64.8. And the last time Adobe’s P / E ratio fell below 35 was back in 2013.
Adobe reports its third-quarter fiscal earnings next week. Smart investors could use any weak spot as an additional buying opportunity.