"In this world, nothing can be said to be certain, except death and taxes." So said Benjamin Franklin more than two centuries ago. While that's still true, there's another certainty that could be added to that short list: All companies -- especially those with high-growth stocks -- occasionally stumble. That's just the nature of investing.
One of the keys to successful investing is noticing when companies are experiencing a stock dip and determining if these inevitable declines are unwarranted. There are lots of reasons stocks can fall, with many of them providing an opportunity for shrewd investors to get shares of quality companies on the cheap.
Let's look at three stocks with a long and lucrative road ahead that are currently selling at a discount.
1. Teladoc: A beneficiary of stay-at-home orders with more upside
It's easy to see why Teladoc (TDOC 2.73%) was a star performer in 2020. This year shined a spotlight on telehealth, particularly after it was recommended by government officials in the early stages of the pandemic. The global leader in virtual care allowed patients to schedule a visit with a healthcare professional without having to venture out to the doctor's office or medical clinic and risk contracting the coronavirus.
As a result, the adoption of telemedicine soared this year, with Teladoc at the intersection of patients and doctors offering remote care. During the first nine months of 2020, revenue grew 79% year over year, driven by triple-digit percentage growth in total patient visits.
Let's not forget the company's recent acquisition of Livongo Health, which helps patients manage a growing list of chronic conditions, including diabetes. The company's Applied Health Signals platform uses smart connected devices to provide feedback, coaching, and actionable insights that not only improve the users' quality of life but also decrease healthcare costs, making it a win-win for patients and insurers.
With several promising vaccines now being distributed, some investors fear the low-hanging fruit has been picked and the best growth is behind Teladoc, but nothing could be further from the truth. While it's unlikely the company will replicate the impressive growth rates it delivered in 2020, Teladoc is just getting started.
The combined revenue of these two healthcare leaders (Livongo and Teledoc) was $724 million in 2019, which pales in comparison to a market opportunity of roughly $64 billion.
As an added bonus, Teladoc stock is currently selling at a 20% discount to its recent highs.
2. The Trade Desk: Riding the wave of programmatic advertising
The recession early in 2020 pounded good and bad stocks alike, but it had a pronounced effect on companies in the advertising industry, particularly digital advertising. In the face of economic uncertainty, this is an area where companies can quickly pull back on spending. As one of the leaders in programmatic advertising, The Trade Desk (TTD 1.34%) was among the stocks that were initially punished during the downturn, as investors "threw out the baby with the bathwater," as the saying goes.
The market downturn was short-lived, and after losing more than half its value in just five weeks, The Trade Desk's stock began a miraculous recovery and was recently up more than 270% for the year. What drove this rapid rebound? In a word: Results.
Marketers soon realized that reining in spending on advertising spend was at best a stopgap measure. Searching for solutions that resulted in the most bang for their buck, they inevitably came upon The Trade Desk. The company's cutting-edge platform can evaluate 12 million ad impressions and quadrillions of permutations each second, ensuring that targeted ads find the right audience.
Additionally, The Trade Desk's channel-agnostic approach continues to yield impressive results. Its connected TV revenue grew 100% year over year in the third quarter, while audio and mobile video each grew by 70%. This helped push overall revenue up 32% year over year, rapidly approaching its pre-pandemic growth rate.
While some investors fear that Apple's latest privacy initiative will stunt The Trade Desk's growth, they simply haven't done their homework. An update to iOS 14 will require users to opt-in for ad-tracking, which decreases the effectiveness of some targeted digital advertising. However, The Trade Desk CEO Jeff Green said this will only affect a small subset of its ads, and thus "doesn't have a material impact to our business."
The stock's stellar growth this year, coupled with those unfounded fears, have conspired to drive The Trade Desk stock down roughly 17% in recent weeks, but the growth story is just getting started. The Trade Desk generated revenue of $661 million in 2019, a drop in the ocean compared to the $29 billion spent on the programmatic advertising market last year.
3. DocuSign: More than just digital signatures
The need for social distancing and remote work during the pandemic makes it difficult to attend meetings to sign agreements in person, accelerating the adoption of digitally signed documents. DocuSign (DOCU 0.47%) is the undisputed leader in the space, with an estimated 70% market share.
The growing need for electronic signatures boosted the company's results this year, with revenue that grew 46% year over year during the first nine months of 2020. Yet some investors now fear that with multiple vaccines being distributed and an end of the pandemic on the horizon, the need for digital signatures will simply evaporate. These fears have recently forced the stock down roughly 17%. This conclusion ignores the basic fact that last year -- prior to the pandemic -- DocuSign's revenue grew 38%.
That's not all. The digital signature is just the beginning of a customer journey with DocuSign, as management was quick to point out on a recent conference call. "Typically, eSignature is the first step that many customers take on their broader digital transformation journey with us," CEO Dan Springer said. "So from a financial point of view, we believe this surge in eSignature adoption bodes well for future Agreement Cloud expansion."
The aforementioned Agreement Cloud is a suite of applications that launched last year. The service integrates with more than 350 of the most commonly used software apps, and it helps companies manage the entire life cycle of contracts and agreements. Since digital signatures act as an on-ramp for contract life-cycle management, DocuSign has years' worth of pent-up cross-selling opportunities waiting in the wings.
While the company has seen increased demand this year, there's still a massive opportunity that remains. DocuSign's management estimates the e-signature market tops out at about $25 billion. That opportunity doubles with the inclusion of the Agreement Cloud, to more than $50 billion. With just $974 million in revenue last year, DocuSign has a long and lucrative runway ahead.
The fine print
The title of this article notwithstanding, there are no guarantees that these specific growth stocks will climb over the next 30 days. However, given the recent stock price declines and the large and growing market that each company addresses, it's much more likely that investors who buy shares of Teladoc, The Trade Desk, and DocuSign will have much more to celebrate in the months and years to come.
Happy New Year!