What happened
Shares of visual search and media company Pinterest (PINS -0.52%), edge computing specialist Fastly (FSLY -0.47%), and telehealth platform provider Teladoc Health (TDOC -0.07%) all fell on Monday. At their worst points this morning, the three stocks were down 6.1%, 3.6%, and 2.9%, respectively. Though as of 12:30 p.m. ET, all three stocks have recovered some since then.
The three stocks were likely down because of a bearish day for the overall market -- especially for growth stocks like Pinterest, Fastly, and Teladoc.
Image source: Getty Images.
So what
The S&P 500 was down about 0.1% Monday as of 1 p.m. ET -- and the tech-heavy Nasdaq Composite was down more than 1.1%. Many growth stocks, however, were down even more.
Skittishness in the market, particularly as it relates to growth stocks, has been a key theme recently as investors wonder how upcoming interest rate hikes by the Federal Reserve could impact these companies' valuations.
Now what
Investors should note that many growth stocks have seen massive declines this year. It's possible, therefore, that a higher interest rate environment is already priced into many growth stocks. Shares of Pinterest, Teladoc, and Fastly, for instance, have all lost at least half of their value over the past 12 months. The three stocks are down 50%, 54%, and 59%, respectively.
While it's impossible to know where the bottom is for these stocks, their valuations are starting to look attractive -- at least for investors who plan to own the stocks for the long haul.
Consider the revenue growth that analysts are expecting from these companies next year. Analysts, on average, expect Pinterest to post $3.2 billion in revenue in 2022 -- up from an estimate for $2.56 billion this year. Teladoc's revenue is forecast to come in at just over $2 billion this year and then increase to $2.57 billion next year. Fastly's revenue is forecast to grow from an estimate of $349 million this year to $419 million next year.
There are, of course, risks to owning growth stocks like Pinterest, Teladoc, and Fastly. The three stocks' valuations are largely based on anticipated free cash flow levels far into the future. This means there's a lot of time for something to go wrong in these three companies' growth stories. And since these companies are already priced for growth, unexpected challenges could lead to a dramatic fall in their stock prices. But based on the three companies' abilities to grow their revenue at impressive rates over the last three years, they seem to be on a great long-term trajectory. Even more, all three companies have large addressable markets relative to their revenue today.
This sell-off could be a good opportunity for investors to take a closer look at these three companies' stocks.
