For more than a year, investors have been privy to one of the strongest bounce-back rallies from a bear-market bottom in history. All three indexes have rocketed to new all-time highs, with the tech-heavy Nasdaq Composite leading the charge. At its best, the Nasdaq more than doubled in just 11 months' time.
However, we know that nothing goes up in a straight line. A number of factors, including sector rotation, higher Treasury yields, and valuation concerns, have weighed heavily on some of the market's growth stocks of late.
But there's good news as well. A falling share price gives long-term investors an opportunity to buy into game-changing companies at a perceived discount. Call it a Spring Sale, if you will, but there are currently four growth stocks that have retraced 40% or more from their 52-week highs that look ripe for the picking by patient investors.
Although it hasn't quite hit the clearance rack, edge cloud services company Fastly (FSLY -6.48%) can be purchased for a 48% discount (as of April 6) from its 52-week high. Fastly is primarily responsible for expediting the delivery of content to end users in a secure manner.
Why the discount? The biggest concern appears to have been the company losing a lot of traffic from TikTok parent ByteDance during the third quarter of 2020. It should be noted that ByteDance was engaged in a stateside dispute with the Trump administration at the time. During the first half of 2020, TikTok accounted for roughly an eighth of total sales for Fastly.
Yet, in spite of ByteDance pulling back on its traffic, Fastly continued to deliver superb results. Sales rose by 45% last year, with a customer retention rate of 99%. More impressively, the company's dollar-based net expansion rate was 147% in the third quarter and 143% in the fourth quarter. What this tells us is that existing customers spent 47% and 43% more, respectively, on a year-over-year basis in the third and fourth quarters.
What's more, Fastly's adjusted gross margin expanded by 430 basis points to 60.9% during the toughest year in decades. This may be a usage-based operating model, but it's high margin and in the perfect position to benefit from the ongoing shift online and into the cloud by businesses and consumers.
Fastly has a real chance to triple its sales over the next four years, which makes its recent discount an intriguing buying opportunity.
Northern Star Acquisition
Another potential game-changer that has retraced significantly (down 42% from its all-time high) and is on sale for opportunistic investors is Northern Star Acquisition (STIC). If the name doesn't ring a bell, it might be because Northern Star is a special purpose acquisition company that's in the process of merging with pet-focused products and services company BarkBox.
The pet industry is the superstar you might not know about. It's been at least a quarter-century since year-over-year U.S. pet expenditures declined. Over that time, we've watched as the percentage of households with a pet has increased from 56% to 67%. And if that's not enough encouragement, nearly $110 billion will be spent on our furry friends in 2021, according to estimates from the American Pet Products Association.
What's really interesting about BarkBox is that it's a data-driven company built atop a subscription model. Beyond just its core operating model of sending treats and toys to dog owners on a monthly basis, it has introduced Bark Home, where consumers can purchase basic-need goods like collars and beds, and Bark Eats, which is a high-quality, personalized dry-food diet for dogs that's delivered as needed.
BarkBox has been able to sign up 1.1 million people thus far, and it recently hit a record-high revenue retention rate of almost 95%. To boot, the company has the potential to double its revenue by 2023, all while maintaining a roughly 60% gross margin.
Growth stocks like BarkBox don't grow on trees, which is why Northern Star Acquisition makes for such a compelling buy.
One of the more surefire moneymaking trends where investors can put their money to work in this decade is cybersecurity. With businesses shifting data into the cloud at a rapid pace, third-party providers like Ping Identity Holding (PING 0.09%) are being relied on to a greater degree to keep that data safe. Ping's specialty, as its name implies, is identity verification.
But in recent months, we've watched Ping fall by close to 41% from its 52-week high. This decline relates to the company's disappointing fourth-quarter results and 2021 outlook. In particular, the company has seen more of its customers sign up for one-year subscriptions as opposed to multiyear subscriptions, which is likely the result of uncertainties tied to the pandemic.
On the other hand, growing long-term demand for unique identity verification systems has Ping Identity in the driver's seat. With its solutions leaning on artificial intelligence to grow more efficient at identifying threats over time, Ping has been able to claim 60% of Fortune 100 companies as customers, and it has delivered double-digit growth in annual recurring revenue (ARR). It ended a tough 2020 with 51 customers generating at least $1 million in ARR, up from 38 in 2019.
Best of all, subscription-based operating models deliver insanely high margins. Since over 90% of the company's revenue is subscription based, and these subs are generating a gross margin of 86%, patient investors look as if they'll be handsomely rewarded.
Lastly, data-mining company Palantir Technologies (PLTR -6.88%) is offering one heck of a spring sale, with its shares down 48% since hitting an all-time high less than three months ago.
If you're wondering why shares have been nearly halved, the answer looks to be valuation. Even though Palantir was an exceptionally popular direct listing that came to market at the end of September, its $45 share price in January placed it at something close to 80 times annual revenue.
The positive news is that Palantir looks to be growing into its big shoes. Revenue growth tallied 47% last year, thanks in large part to a number of large contract wins for its Gotham platform. Gotham provides data-mining services for the federal government, and it's currently the leading revenue generator for the company. The scale and optionality offered by Gotham to the federal government should help Palantir sustain a growth rate in the 30% to 40% range.
But the more-exciting long-term growth driver looks to be Foundry, which is Palantir's analytics service for enterprises that is designed to help them better understand their data and make their operations more efficient. Palantir had only 125 customers as of August, when it filed its prospectus. That represents just the tip of the iceberg for Foundry.
Long-term investors look to be getting one heck of a bargain on Palantir.