For the past 12 years, growth stocks have run absolute circles around value stocks. The reason? Borrowing rates have continued to push lower and, for much of the past 12 years, the Federal Reserve has maintained a dovish stance with regard to monetary policy. In short, growth stocks have had cheap access to capital with which to innovate, hire, and even acquire other businesses.
But the thing about equities some people forget is they move in both directions. Even though the long-term trend for the major indexes is up, short-term moves can be unpredictable. Over the past couple of months, we've witnessed a pretty broad sell-off in growth stocks. While some have recovered, many remain on sale and are ripe for the picking.
The growth stock sale of 2021 has arrived, folks, and this trio of companies is begging to be bought.
The first growth stock that's been put on the clearance rack of late is edge cloud services company Fastly (FSLY 1.00%). As recently as Feb. 9, Fastly shares closed at nearly $119. Yet, on Wednesday, April 14, they could be purchased for $72.20. That's a discount of 39% in just over two months, for those of you keeping score at home.
Fastly was one of a few dozen companies that really benefited from the coronavirus pandemic. With businesses pushing online and into the cloud, it's become more important than ever to ensure that content reaches end users as quickly and securely as possible. Even when the pandemic ends, consumer and enterprise content consumption habits are unlikely to change much. That's great news for Fastly and its usage-based platform.
So, why the 39% decline? A lot of it had with Fastly's full-year outlook. In particular, Fastly sees its losses for 2021 coming in higher than Wall Street's consensus, primarily due to higher headcount and acquisition-related expenses. The company also gained only 37 new customers in the fourth quarter, which was a significant slowdown from the preceding quarters.
On the other hand, it's pretty clear that Fastly's existing clients love its services. It sported a 99% annual revenue retention rate last year, and delivered a dollar-based net expansion rate of 147% and 143%, respectively in the third and fourth quarters. In plainer terms, nearly all of its existing clients stick around, and those that did spent 47% and 43% more in Q3 2020 and Q4 2020 than they did in the year-ago quarters.
Fastly is the type of innovative business that can maintain a 30% sales growth rate throughout the decade. Its recent discount is an excellent opportunity for patient investors to pounce.
Another growth stock with plenty of paw-tential that can be picked up at one heck of a discount is companion animal health insurance provider Trupanion (TRUP 0.31%). On Feb. 8, 2021, Trupanion closed at almost $124 a share. But a little over two months later, it's at $76.38. That's a 38% discount for opportunistic investors.
Why the sell-off? Similar to Fastly, Trupanion's slide appears to be tied to its most recent operating results announcement. During the fourth quarter, Trupanion lost $0.09 a share, which was wider than the $0.03 per share loss analysts had been looking for. To boot, customer acquisition costs also rose slightly. Considering that Trupanion's share price had risen from $26 to $126 in 11 months, investors seemed less inclined to give the company the benefit of the doubt.
Although costs are bound to fluctuate a bit for Trupanion in the short-term, the vast majority of its metrics are headed in the right direction. It ended 2020 with almost 863,000 enrolled pets and is likely to hit the psychologically important 1 million enrollment figure this year. Working with veterinarians and clinics for two decades has allowed the company to develop invaluable rapport at the most critical level of subscriber engagement.
Furthermore, Trupanion has only scratched the surface of the companion animal health insurance market in North America. In the U.S., it holds about a 1% insurance share of all owned pets. Comparatively, 25% of pet owners in the U.K. have health insurance on their four-legged family members. If Trupanion were to reach a penetration rate of 25% in the U.S., its addressable market would be more than $32 billion. For reference, it generated $502 million in sales last year.
With people spending liberally on their pets, it's only logical that more owners will pony-up for insurance that'll improve the health and longevity of their "family member(s)."
Third and finally, there's biotech stock Vertex Pharmaceuticals (VRTX -1.84%). Shares of Vertex are down almost 10% on a year-to-date basis, and at $217.13, as of April 14, they've pulled back significantly from a 52-week high of $306, set back in July 2020.
Why the substantial haircut, you ask? First of all, in keeping with the theme from Fastly and Trupanion, investors weren't thrilled with its fourth-quarter operating results. The reported $2.51 per share in profit fell about $0.08 shy of estimates, breaking a multiple-quarter streak of double-digit percentage profit beats.
Vertex has also been reeling since a mid-October clinical update where it announced the discontinuation of VX-814 as a treatment for alpha-1 antitrypsin deficiency. Several patients in a mid-stage study involving the experimental drug showed substantial elevations in liver enzymes.
That's the bad news. Now, for some good news.
Vertex has been an absolute stud when it comes to developing next-generation treatments for people with cystic fibrosis (CF). This hard-to-treat genetic disease has no cure, but developing multiple successful drugs for specific mutations has resulted in improved quality of life for CF patients. The latest treatment, Trikafta, encompasses around 90% of all CF patients and led to a statistically significant improvement in lung function in late-stage clinical trials, as measured by forced expiratory volume in one second. In its first full year on pharmacy shelves, Trikafta brought in close to $3.9 billion in sales.
It's also sitting on a small fortune of $6.66 billion in cash, cash equivalents, and marketable securities. The plan is for Vertex to use this cash, and its ongoing operating cash flow, to buy other businesses or treatments to broaden its product portfolio beyond CF. Even with VX-814's flop, the company still has a half-dozen other drugs currently in development and a very successful clinical track record.
Investors can nab shares of Vertex for under 17 times forward-year earnings, which is a steal considering its consistent double-digit sales growth rate.