The market has had a crazy ride, caused by the increasing yield curve and turn of investors from growth to value companies. Correctly playing your timing amid such high volatility is almost impossible. But these times also give us a great opportunity to focus on buying strong stocks at large discounts. If you have $5,000, the following three stocks are a perfect example of such companies.
Fintech leader Square has come forward as a force to contend with in the financial industry. The company gives point-of-sale solutions, analytics, capital and other services to merchants. The company also services customers through its payment system, Cash App.
The seller ecosystem is a larger part of the company’s business. Despite covid harming physical retailers, the company processed payment volume totaling $103.7 billion in 2020, down y/y by 13.6%.
Square is not dependent only on smaller businesses — making the company more resistant to economic challenges. In Q4, larger sellers with volume over $0.5 million made up nearly 60% of their total seller volume.
Cash App is a smaller but faster-growing segment of Square’s operations. The peer-to-peer platform’s active users increased y/y by 50% to 36 million in late 2020.
Individuals can use the Cash App for many financial tasks including investing in Bitcoin and stocks. Square’s revenues from such Bitcoin transactions increased by a whopping 785% in fiscal 2020.
Square is selling at right over 110x forward earnings. These valuations are expensive. But Square estimates its whole market to be over $160 billion. The company has its market penetration pegged to be under 3%. Considering the company’s 2020 revenues, the market share comes to 6%. The company also had profit of $213 million in 2020. With such a huge market size, this profitable company has much more room to grow.
Cloud company Datadog offers solutions to monitor IT networks, infrastructure, applications and much more — on a unified dashboard. The company has benefited from the pandemic-driven digital transformation. While it has cooled off after their lower-than-expected fiscal 2021 numbers, the company is still very much in demand.
In 2020, the amount of Datadog customers spending over $1 million per year increased year over year by 94%, while those spending over $100,000 also grew by 46%. The company’s dollar-based net retention rate has been 130% for fourteen quarters in a row, which also includes Q4. At the end of last quarter, 72% of its customers were using at least two of the company’s products, while 22% utilized four or more. The company’s strategy has created a sticky customer list.
Last year, their revenues popped by 66% to $603.5 million, non-GAAP income was $71.6 million, and cash flow numbered at $83 million. For fiscal 2021, the company has estimated revenues to grow by 37% to 38% and net income per share to decrease y/y by 36% to 54%. However, the decline in earnings is not that large a challenge, considering that the company is prioritizing revenue growth over short-term profits.
Trading at almost 310 times forward earnings, it is pricey. But considering the company puts its possible market around $35 billion and is already a huge player in the observability space, there is great potential for it to reach even higher.
3. Fulgent Genetics
Fulgent Genetics is a genetic technology company that has now transformed into a leading covid testing player and has great potential to increase even after covid is gone.
The company had a perfect run in 2020. Revenues went up by 1,200% to $421.7 million, while net income saw an explosion y/y from a negative $411,000 to a profit of $214.3 million.
Despite these incredible results, investors are anxious about covid testing revenues going away soon, which in turn will have a huge effect on the company’s growth. This concern is reasonable since most of the fiscal 2020 growth came from the virus testing business.
However, the future of the company’s non-COVID business — where they are using next-generation sequencing (NGS) technology to find 5,700 different genetic conditions based on certain mutations in over 18,000 genes at a cheap price– is now secure.
Fulgent’s price has already increased over 619% in the past year and over 82% in 2021. The company is now predicting a 90% y/y increase in 2021 revenues to $800 million, which is an amazing forecast after an already strong year. Given this, the company could soar again this year.