3 Tech Stocks Down 37% to 60% to Buy for 2022

A broad array of tech stocks have been sold off by the market over the last few months. Experienced investors know that this kind of market malaise is temporary. Stocks of strong-growing companies will bounce back as those companies continue to perform.

Given the market conditions, three longtime investors selected stocks that have taken it on the chin lately but are great buys for the coming year. They chose HubSpot (HUBS -0.01%), Snap (SNAP -2.72%), and Zoom Video Communications (ZM 0.05%), which are off their highs from 37% to 60%.

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Caught in the wicked tech undertow

Danny Vena (HubSpot): It wasn't terribly long ago that investors were singing the praises of HubSpot, driving the software-as-a-service (SaaS) stock to a new all-time high. Now, just two months later, the company has suffered a reversal of fortune, with the stock down almost 40%. What changed during that time? In a word: nothing.

From an investing standpoint, HubSpot has continued to execute on its vision, with no company-specific news driving the decline. The company is expanding beyond its inbound marketing roots on its journey to becoming a full-service customer relationship management (CRM) platform.

That's not to say that HubSpot has abandoned the inbound marketing that it pioneered, changing the way advertisers attract potential customers. The company continues to focus on brand awareness and marketing automation, meeting customers where they are. This includes providing helpful content on social media, blogs, and events, developing effective content marketing, search engine optimization, and more.

However, HubSpot also continues to follow the playbook employed so effectively by Salesforce.com, rapidly expanding its suite of services, which now includes marketing, sales, service support, content management, and operations solutions.

The company recently announced an important addition in its large and growing ecosystem, debuting the Operations Hub for Enterprise. Perhaps more illustrative of its future prospects was the introduction of HubSpot Payments, its proprietary, end-to-end, digital payment tool, which is integrated directly into the other tools on its platform. By providing a payments solution developed specifically for enterprise and serving the needs of business-to-business commerce, HubSpot has made its solution even stickier. 

HubSpot's impressive growth rate continued last year. During the first nine months of 2021, revenue grew 48% year over year, with subscription revenue also climbing 48%. Growth accelerated in the third quarter to 53%, showing the resilience and enduring prospects of its business. Profits are still elusive as HubSpot chases market share, but the writing is on the wall, as free cash flow surged 275% compared to the prior-year period, illustrating the ability to leverage its platform. 

The company's customer metrics are equally compelling. HubSpot grew its total customer base to 128,144, up 34% year over year, while the average subscription revenue per customer increased 9%. This is a drop in the bucket compared to its total addressable market (TAM) of more than 3 million small to medium-sized businesses with a website.  

With each expansion into an adjacent business, HubSpot has gradually increased its TAM, which one analyst now estimates at nearly $87 billion. Compared with its 2020 revenue of $883 million, the company currently addresses less than 1% of its market opportunity, leaving a vast runway for growth. 

Recently, HubSpot has fallen victim to the undertow that has punished many high-growth and technology stocks, giving in-the-know investors the chance to buy this impressive growth at a 40% discount. Get shares while they're hot. This sale won't last long.

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At a lower price point, this social media stock should Snap back

Will Healy (Snap): Snap continues to drop after benefiting from a massive surge during the pandemic. The stock rallied more than tenfold between March 2020 and November 2021.

However, some red flags for Snap's future and a Q3 revenue miss led to a drop of nearly 50% since late September. Since Apple's iOS update made tracking the success of ad campaigns more difficult, uncertainty about the stock increased. Also, revenue for Q3 was $1.067 billion, 57% higher than year-ago levels. Despite that huge increase, revenue came in about $32 million below consensus estimates.

However, the current price-to-sales ratio now stands at 18, its lowest level since the fall of 2020. While that may still seem high, Snap stock could justify that growth for two reasons. First, Snap appears positioned to maintain considerable growth rates. Analysts expect 60% revenue growth in 2021 though they also believe it will slow to 39% in 2022 with the iOS-related issues.

Second, Snap revived its business amid intense competition from sites operated by Meta Platforms when it figured out how to monetize that platform. Thanks to these efforts, this has funded user growth and allowed it to enhance its vision of computing overlaid on its camera.

These efforts have revived its once-stagnant user growth. As of Q3, its daily active user count reached 306 million, growing more than 20% year over year for the fourth consecutive quarter.

Moreover, these efforts have positioned Snap stock to become a notable metaverse stock. So strong is its potential that Jefferies analyst Brent Thill argued in an interview with Yahoo! that Snap was "way ahead" of Facebook in the metaverse. Thill cited technology that allows users to create and manipulate virtual emoji characters when making that claim.

Still, Snap faces challenges. At a market cap of $69 billion, Snap remains a small fraction of Meta's $920 billion market cap. Also, the challenges with Apple remain a headwind. Nonetheless, with its considerable user and revenue growth, the stock can still command a premium. If investors increasingly see Snap as a metaverse play, its 18 P/S ratio could look like a buying opportunity.

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A stellar operator at a great price

Brian Withers (Zoom): Zoom's video communication platform has been a go-to during the coronavirus pandemic. We've turned to Zoom's software for just about any social interaction, whether it be for work or fun. As popular as it's been, the stock is down over 60% off its high. Today, this looks to be a great value for long-term-minded investors. Let's take a look at why.

Data source: Company earnings releases and presentations. ARR = annual recurring revenue.

First, the business is executing well. The company put up solid growth numbers for its top line, large customers, and remaining performance obligations. These gains were on top of even more massive gains the previous year. Additionally, it's in a much better cash and profitability position than it was two years ago. Cash and marketable securities are $5.4 billion, up almost sevenfold from Q3 FY20's number of $811 million. Operational cash flow has grown to $395 million from $62 million over the same two years, a sixfold increase. Lastly, operation margins have improved considerably to 28% from a negative 1% the same quarter two years ago.

Looking ahead, investors aren't going to see triple-digit year-over-year top-line growth numbers they saw during the height of the pandemic. For the upcoming quarter ending Jan. 31, 2022, management is projecting 19% year-over-year revenue growth. It's likely that this revenue growth of around 20% year over year is more representative of the new normal. These are solid growth numbers for a $4 billion annual run-rate business.

This reminds me of another software stalwart, Adobe. The creative cloud and document management company has similar growth, profitability, and price-to-sales numbers. Over the last five years, Adobe has put up annual growth of around 20%, is solidly profitable, and currently has a price-to-sales ratio of 18. Over the last five years, Adobe's stock has grown 390%, soundly beating the market.

Today, Zoom's P/S ratio is sitting at an all-time low of 14. With hybrid work and virtual events here to stay, it's likely that Zoom can follow in Adobe's footsteps and put up 15% to 20% annual growth over the next five years. Investors would do well to pick up a few shares of this video communications platform today.