This year has certainly been one for the record books. The major market indexes began their record-setting coronavirus-induced swoon on Feb. 19, and the Dow Jones Industrial Average eventually declined 27%, the S&P 500 dropped 34%, while the tech-heavy Nasdaq Composite lost about 30%. Then the major indexes began to climb, eventually rising 56%, 60%, and 76%, respectively, from their March bottoms through Sept. 2.
Over the past week, however, the market has been firmly in decline mode, with the Dow, S&P, and Nasdaq falling 5%, 7%, and 10%, respectively, since hitting their peaks last week. It's important to remember that markets rise and fall, and the current retrenchment is to be expected after the surprisingly strong bull run that began in March.
With that as a backdrop, let's look at three stocks that are worthy of investors' hard-earned money, particularly since these companies are significantly cheaper than they were just last week, and could be even more so if the current market declines continue.
1. Twilio: a crucial communication link
Millions of developers worldwide have embedded Twilio's (NYSE:TWLO) communications technology in their own consumer-facing apps, rather than reinvent the wheel. These tools help companies communicate with their customers using channels including text, chat, video, and email.
In fact, you've probably used Twilio's technology without even knowing it. Those updates about the status of your food delivery? The online chat you had with a customer service rep? The real-time alert from your rideshare provider? They were, in all likelihood, powered by Twilio's infrastructure.
The need to stay connected with customers has taken on even greater importance during the pandemic, and business is booming. In the second quarter, Twilio's revenue grew 46% year over year, while its losses edged lower. The company continued to attract new customers, with its client base of more than 200,000 climbing 24%. Twilio continued to expand its relationship with existing customers, who spent 32% more on average than they did last year.
This could be just the beginning. Twilio produced revenue of $1.13 billion in fiscal 2019, which is a drop in the bucket compared with the company's total addressable market, which is estimated at $40 billion.
Forward-looking investors can scoop up Twilio at a bargain: The stock is currently selling at a 15% discount to just a week ago.
2. Fastly: speeding up apps and websites
Arguably, nothing makes potential customers abandon a website faster than slow load times. That's where Fastly (NYSE:FSLY) comes in. The company's strategically placed edge cloud platform forms a state-of-the-art content delivery network (CDN) that helps its customers reduce the lag and supercharge response times. Like its name implies, Fastly helps deliver faster service for a variety of applications, including websites, apps, photos, videos, and more.
The pandemic has accelerated the need for Fastly services as education shifted to remote learning, brick-and-mortar stores pivoted to e-commerce, patients transitioned to telehealth, and streaming video saw a boom in adoption. The common thread among these diverse offerings is the need for the lightning-fast connection and response times that Fastly's technology provides.
The company has expanded to 55 markets worldwide, increasing its global network capacity to 100 terabits per second, representing 35% growth since just the start of the year, making it available to more customers than ever before.
In the second quarter, Fastly's revenue grew 62% year over year, accelerating from 34% growth in the prior-year quarter. This helped Fastly generate positive net income for the first time since the company's early 2019 market debut. Its customer base grew to 1,951, up 20%, which was the largest quarterly increase since its IPO. Existing customers are also spending more, pushing the company's dollar-based retention rate to 137%.
Fastly generated revenue of about $200 million last year, which pales in comparison to its total addressable market, which management estimates at $36 billion.
Best of all for investors, in spite of its rapid growth, Fastly is selling at a 12% discount compared with last week.
3. Shopify: the acceleration of e-commerce continues
The paradigm shift to e-commerce was already ongoing when the pandemic struck, increasing the urgency for those who hadn't already made the transition. Many merchants found themselves in survival mode, needing to move online quickly or fade into oblivion. Shopify (NYSE:SHOP) was there to provide entrepreneurs with everything they needed to digitize their retail operations.
Shopify starts by helping build a website with dozens of ready-to-use templates and hundreds of apps to customize the experience for each business. And that's just the beginning. Its platform integrates with each of the biggest payment processors, while also helping with things like inventory control and shipping. Merchants also have access to point-of-sale systems, email, digital advertising, and much more.
Being the platform of choice as hordes of merchants made the move online paid huge dividends for Shopify. In the second quarter, the company smashed expectations, with revenue growing a massive 97% year over year, while its adjusted earnings per share climbed more than tenfold. New stores on the platform grew an impressive 71% sequentially, while its gross merchandise volume climbed 119%.
Shopify generated revenue of $1.58 billion last year, but that's just a drop in the ocean compared with its total addressable market of $78 billion. The price is right, too: Shopify stock is selling for 14% less than this time last week.
A word on valuation
It's important to note that nearly all robust growth comes at a cost. None of these companies could be called cheap; in fact, it's quite the opposite. Twilio, Fastly, and Shopify are selling at 20, 29, and 42 times forward 12-month sales, respectively, when a reasonable price-to-sales ratio is typically between 1 and 2. Given their recent impressive stock price gains, it isn't surprising each would sport a premium valuation.
Investors have thus far been willing to pay a higher valuation for each of these companies, based on their impressive top-line results and the possibility of continued strong growth for years to come. Those who have been patient can now get shares at a significant discount to the price they would have paid just a week ago.