Stock market "crashes'' are quite common. Historical averages show that the S&P 500 (^GSPC 0.02%) registers at least a 10% tumble from highs about every year to year and a half. We're closing in on that average since the market's steep drop at the start of the pandemic in March 2020, and some investors are waiting for another crash before putting money to work.
But why wait? Market declines don't hold to a strict schedule, and foregone gains while waiting could far exceed money lost in an eventual crash. Plus, there already was a deep downturn early in 2021, at least in one corner of the stock universe. High-growth tech stocks fell hard starting in March, some losing more than half their value in the course of a couple months. Three that are still down by at least 25% are Medallia (MDLA), Spotify (SPOT -7.28%), and Alteryx (AYX). Here's why a few Fool.com contributors think they're a buy right now.
New tools to "read the room" in a virtual world
Nicholas Rossolillo (Medallia): In a new digital era, it's a challenge for businesses to collect feedback from customers and employees without direct observation and communication. Enter Medallia, a leader in the digital experience software market. The company operates an AI platform that detects and collects patterns and predicts behavior of a company's customers and employees -- across everything from applications to chat to reviews left on the web.
Given the fast-evolving needs of businesses and the people they interact with on a daily basis, the digital experience software space should experience robust growth for some time. Medallia's platform was purpose-built as a cloud-based offering, and the AI functionality helps automate collection of data and suggests fixes to help improve an organization's performance across digital channels. With the cloud disrupting the IT status quo and on track to become a $1 billion industry by the end of this decade, there's no shortage of room for Medallia to stretch its legs in its little corner of the cloud sandbox.
Nevertheless, the stock took quite the tumble this past spring and is currently down over 30% from all-time highs. To be fair, Medallia's valuation was starting to get a little overcooked early in the year, so a pullback was in order. But this small company (its market cap is currently at $5.1 billion) is still growing at a steady clip. Total revenue in Q1 was up 17% year over year to $131 million, and total current-year revenue is expected to be up 19% to about $568 million (at the midpoint of guidance).
Medallia isn't for everyone. The company still operates at a loss (management expects an adjusted operating loss of as much as $22 million this year), and at just under 10 times trailing-12-month sales, this still isn't the cheapest stock around. The company also has $560 million in debt in the form of notes that can later be converted into stock. But operating in an important segment of the cloud industry and with cash and equivalents of $541 million on hand, this looks like a reasonably priced stock for the long haul -- one you don't have to wait on a market crash before buying.
Image source: Getty Images.
I spot a market-beater in Spotify
Anders Bylund (Spotify Technology): Music and podcast content streamer Spotify Technology is going places. In April's first-quarter report, the company increased its monthly average users (MAUs) by 24% year over year to 356 million names. The number of premium subscribers rose 21% to 158 million. That's a lot of users, establishing Spotify as a leading provider of media-streaming services in a period of explosive growth for that nascent industry. This impressive user growth is paired with a careful program of price increases on a market-by-market basis.
The company is working hard to solidify last year's lockdown windfall into a lasting benefit. Spotify has launched powerful social media sharing tools on the artist side. A program for sponsored recommendations holds audience-boosting promise for content producers and should also help listeners find more of the listening experiences they crave. And the company's spending spree for premium podcast content continues, including 55 new original or exclusive podcast titles in the first quarter alone.
Spotify is making many smart moves that should result in strong financial results for years to come. Great stock returns will follow, lifting Spotify's stock out of a recent slump. Share prices are down 5% year over year and you can pick up Spotify stock at a 33% discount from February's all-time highs.
This software company is down big, but plays a growing role in the big data economy
Billy Duberstein (Alteryx): Data analytics company Alteryx is down over 30% this year and almost 55% from all-time highs set back last year. Yet at just 11 times sales, it's among the cheapest data-centric software companies you'll find in the market today.
Data by YCharts.
Despite the sell-off, Alteryx's highly relevant software niche still has a large total addressable market opportunity, and recent quarterly results were better than expected. Alteryx helps facilitate data preparation from many disparate sources, and automates the analytics process. Its easy, code-free platform allows business analysts without advanced coding skills to run analytics according to their desired outcomes. That type of service applies to a very wide range of industries, as data analytics becomes more important to business decisions.
So why is Alteryx so unloved? Chalk it up to a combination of a misleading accounting convention, along with a recent CEO and business model transition. On the accounting front, Alteryx has a curious wrinkle in which it has to recognize 35%-40% of its revenue at the time a deal is signed, with the rest recognized equally over the term of its license. With the slowdown in new deals due to the pandemic, as well as many customers opting for shorter license terms, this led to a big deceleration in revenue.
But even though revenue only grew 9% last quarter, Alteryx's annual recurring revenue, which is a better indicator of the growth of the business, grew 27%. Dollar-based expansion was 120%, indicating current Alteryx customers got value from the platform and continued to use more and more of the service.
It's also early in the tenure of new CEO Mark Anderson, who took over for founder Dean Stoecker last fall. Anderson had a successful previous career at Palo Alto Networks (PANW 0.11%) and F5 Networks (FFIV 1.18%), where he led teams that executed on high-revenue growth over many years at each company.
With a rejuvenated leadership and go-to-market strategy along with a still-large market opportunity, Alteryx looks like a promising buy-the-dip candidate in the big data economy.
