Investors waiting for a "crash" before investing more are finally getting the action they were waiting for. Many fast-growing tech company stocks are down by double-digit percentages in recent weeks after reporting fourth-quarter 2020 earnings. Tech's run is far from over, though, as the economy enters a new digital era. Three Fool.com contributors think Teladoc Health (TDOC -4.55%), Fastly (FSLY -3.38%), and Lam Research (LRCX -1.69%) are great buys after the tech stock "crash." Here's why.
The leader in telemedicine is building momentum
Nicholas Rossolillo (Teladoc Health): I've been a Teladoc shareholder for years, and "buy the dip" has worked wonders over that stretch of time. This most recent bout of volatility -- shares are down over 25% from all-time highs briefly registered in mid-February -- looks like one of the best times yet to buy more shares of the leader in telemedicine.
Teladoc said its revenue increased 145% year over year in Q4 2020 to $383 million, bringing its full-year total to $1.09 billion -- a 94% increase over 2019. Virtual visits with a healthcare professional turned into an instant staple during the pandemic, and Teladoc was the biggest beneficiary of the development. Its platform facilitated 10.6 million virtual visits last year, up 156%. And resulting adjusted EBITDA was $127 million for the year compared to just $31.8 million the year prior.
Many investors have worried that Teladoc's recent success due to COVID-19 would be fleeting, but the company just went a long way in proving otherwise. It acquired digital care technologist Livongo Health at the end of 2020, and paired with Teladoc's telehealth leadership, the combined companies expect to nearly double revenue again in 2021 to $1.94 billion to $2 billion. Adjusted EBITDA is expected to be at least $255 million. And Teladoc thinks it will facilitate at least 12 million virtual visits. It's a big number, but still a tiny slice of the industry overall. Suffice to say, there is plenty of room for this company to continue disrupting the healthcare status quo.
After the quarterly update and outlook for 2021, Teladoc stock trades for about 17 times one-year forward revenue. For an innovative company growing at such a rapid pace, I say this is a great long-term value. I plan on adding more shares to my existing position in March.
Fastly's unique market position is underrated
Anders Bylund (Fastly): Content delivery networks (CDN) expert Fastly is often held up as a great business with an expensive stock. That equation is shifting as we speak, making Fastly a better and better value as the days go by.
Fastly shares are trading more than 40% below October's all-time highs. Many investors are worried about the company's slowing revenue growth. Full-year sales should increase by roughly 30% in 2021, according to Fastly's latest guidance targets. That's down from 45% in 2020 and 39% in 2019. The unprofitable company's valuation rests directly on Fastly's ability to deliver impressive top-line growth, like many other high-growth investments, and this argument makes some sense.
However, Fastly has a history of underestimating its own revenue growth more often than not. The company is also attached to rapidly changing target markets such as media-streaming services and online gaming platforms. The recent acquisition of cloud security specialist Signal Sciences should help Fastly widen its operating profit margins while opening the door to cross-selling opportunities. Therefore, it won't surprise me if Fastly's full-year sales come in well above the current guidance target.
Furthermore, Fastly critics like to point out that the CDN market is teeming with rivals and drop-in replacements. That's true in terms of basic CDN services, but the number of head-to-head competitors drops dramatically when you look at Fastly's value-added edge computing services. Security and edge computing sit at the heart of Fastly's long-term business plan and R&D investments. Moving some number-crunching processes closer to the client looks like a game-changing idea as Internet of Things devices continue to flood the global market. As a first-moving market leader in edge computing tools, Fastly should have plenty of rocket fuel in its tanks for the years ahead.
In my eyes, Fastly is a fantastic buy at the lower prices we see today. And if there's another round of haircuts for the tech sector's fastest-growing market darlings, you'll probably find me adding to my own Fastly position again.
Use the pullback to add to the semiconductor boom
Billy Duberstein (Lam Research): I've recommended Lam Research before and at much lower levels, but you know what? The stock still looks attractive after an impressive six-month run. Shares have pulled back about 10% from recent all-time highs, but still trade at a very reasonable 24 times earnings expectations for the fiscal year ending in June -- just four months away.
There's a good case to be made that Lam is in for more years of growth. While some view the semiconductor equipment sector as cyclical, the long-term trajectory is up, with higher highs and higher lows. Furthermore, Lam has the highest percentage of its sales coming from stable, annuity-like services revenue compared with its peers. Services revenue made up about 33% of total sales last quarter, and that business should grow with the installed base every year, no matter what annual equipment sales are doing.
But equipment sales also look strong. Currently, there is a big chip shortage across many applications, and foundries are scrambling to catch up with demand. Furthermore, many countries, including the U.S. and others in Europe, are beginning to subsidize new semiconductor fabs on their own shores, out of concern about the concentration of leading-edge chip production in Asia. That push could lead to even more redundant demand for semi equipment suppliers. And of course, chip stocks should benefit from both the economic reopening and the stepped-up digitization brought on by the pandemic.
Considering that high-growth software stocks trade at price-to-sales multiples in the 20s, Lam Research's 24 P/E ratio looks downright cheap by comparison. However, Lam's stock tends to be volatile, and could fall even further if the tech rout continues.
Still, if that happens, not only will Lam continue to buy back stock with its high cash-flow business, but it could open up an opportunity for long-term-oriented investors. Lam looks to be a strong performer as long as chip demand grows, and that should happen for the foreseeable future as 5G, AI applications, automated factories, and "smarter" autos proliferate.