The market is not much more than a popularity contest, taking turns loving and hating stocks on any given day, for any reason. Instead of understanding the logic behind this (the market is irrational), focus on finding the unpopular stocks that could one day be the "it" stocks that everyone wants.
Many technology stocks have been seemingly detested lately, but we can find deals today on stocks that could be booming tomorrow by looking at fundamentals. Here are three of them.
1. Marqeta
The global financial services industry is worth trillions of dollars, and the way society moves and spends money has remained relatively the same until the past decade or so.
Image Source: Getty Images.
Fintech companies are currently blossoming rapidly, and Marqeta (MQ 3.27%) serves a particular purpose in this landscape. Marqeta is a modern card-issuing platform that enables its fintech customers to connect to the existing payment networks like Visa and Mastercard through its application programming interface (API). Its technology powers the payments for many applications like Square's Cash App, Affirm's debit card, driver transactions on DoorDash, and more.
The company is growing, reporting a 56% year-over-year increase in revenue on its 2021 third-quarter earnings. Square is Marqeta's largest customer, where it gets about 68% of its total revenue. However, this number is slowly coming down thanks to the speedy growth of other customers. Especially those in the Buy Now, Pay Later space that Marqeta serves like Affirm, Klarna, Afterpay, Sezzle, and Zip.
The stock went public via an initial public offering in June but currently trades well below the $30 share price it debuted at. Investors might be scared of Marqeta's concentration in Square, but at a price-to-sales ratio of about 21, the stock's growth and strong customer base could make it worth considering shares here.
2. MercadoLibre
E-commerce has been a common theme among growth investors since Amazon's rise more than a decade ago. But, there is still a long runway for growth in emerging markets, and MercadoLibre (MELI 1.09%) has been building its business in Latin America for nearly 20 years.
The company has multiple layers to its business, including e-commerce, shipping and logistics, and payment/credit services. Each segment complements the other, giving customers a complete and superior customer experience in a region where many residents are underbanked or live in remote areas where amenities and stores are harder to find.
MercadoLibre saw its growth accelerate during COVID. Revenues grew 73% year over year in 2020 to just under $4 billion, and the company is having another strong year in 2021 where Q3 revenue grew 66% despite a high comparable from 2020. The business is also generating positive earnings-per-share even as reinvestment in the company continues growing.
Aside from this growth, the stock has been down 28% over the past year, which could be from fears of competition as it battles Sea Limited for market share in the region. The growth, however, implies that business is just fine, and the stock's P/S ratio is now at 8, its lowest since 2019.
3. Zoom
Some companies saw incredible growth during the pandemic. Digital communications company Zoom Video Communications (ZM 5.57%) could be the ultimate poster child of the pandemic when people were "Zooming" because lockdowns kept everyone inside their homes.
Zoom is most famous for its video meeting technology, but it has other capabilities like chat and Zoom Phone. We can see in the chart below how the company's revenue growth grew by multiples of its long-term average during the height of COVID.
ZM Revenue (Quarterly YoY Growth) data by YCharts
After hitting a share price as high as $559 in late 2020, the stock has retreated to under $200 because of impossible-to-top comparable 2020 growth numbers. The pandemic probably pulled forward a lot of demand, meaning that Zoom's products got adopted faster than they would have. The company might grow more slowly moving forward, and investors have punished the stock as a result.
The stock's P/S ratio is now 15, which could be a reasonable valuation even with the slower growth because the company is very profitable, on pace to earn roughly $5 per share in 2021. Analysts see revenue growth in the mid-teens in 2023 and EPS growth near 20% each year over the next three to five years. The ship has likely sailed on Zoom delivering life-changing returns to investors, but it can still be a profitable and growing technology holding in your portfolio.
