Growth stocks have generally had a tough go of things early in 2022. A combination of factors including pandemic-related challenges and macroeconomic shifts have led to major sell-offs for many tech stocks with forward-looking valuations.
On the other hand, recent turbulence has also created fresh opportunities, and risk-tolerant investors will be able to score some huge long-term wins by investing in the best of these beaten-down companies. With that in mind, read on to see why a panel of Motley Fool contributors identified Pinterest (PINS 0.21%), Fiverr International (FVRR -0.75%), and Lemonade (LMND -0.25%) as top stocks trading at big discounts.
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The economic reopening has not been kind to Pinterest
Parkev Tatevosian (Pinterest): The image-based social media company, Pinterest, took a beating in 2021. The stock has fallen 54.5% over the last year as the company was harmed by economic reopening on several fronts. First, people had more options on what to do with their time and chose to interact with Pinterest's app less often as the year progressed. That caused Pinterest's monthly active users (MAU) to fall in two consecutive quarters for a total loss of 24 million.
As you may already know, Pinterest is free to join and use. The company makes money by showing advertisements to users browsing its app or website. In that regard, economic reopening and ensuing supply chain disruptions reduced marketer appetite for promotion. There is little need to advertise your products if you can barely meet existing demand. The combination of factors is causing Pinterest management to forecast revenue growth in the high teens for the fourth quarter.
That's a far cry lower than the near 50% rate of growth Pinterest has logged in each of its last three years. The deceleration in revenue growth and losses in MAU made investors nervous and sent the stock crashing. Pinterest is now trading at a price-to-sales ratio of 8.8, which is near what it was selling for in January 2020. At that time, Pinterest had 367 million MAU and an average revenue per user (ARPU) of $0.77. As of its most recent update on Sept. 30, Pinterest has 444 million MAU at an ARPU of $1.41. Investors can buy a significantly more robust business for the same price it was selling two years ago. That's what makes Pinterest an excellent undervalued growth stock to buy in 2022.
Don't miss out on this massive trend
Keith Noonan (Fiverr International): Companies around the world are increasingly turning to gig-based labor instead of the traditional employee-employer workforce dynamic, and Fiverr International is in a prime position to facilitate and benefit from this trend. Contracting labor through Fiverr offers businesses the opportunity to take a more flexible approach to staffing and cut down on office costs, employee benefits, payroll taxes, and other expenses. The platform also offers value for individual users. You can turn to its marketplace as a worker or hire someone for graphic design work, video editing, or other services.
The gig economy is poised for tremendous growth over the long term, but some near-term trends have put a serious hurt on Fiverr stock. The peak of pandemic-related social distancing seems to have passed, and workers are heading back to the office. The company has posted more muted growth compared to last year's incredible numbers, and the market is down on Fiverr's prospects.
The stock is currently down 58.5% over the last year and a staggering 72% from the high it hit last February, and I think it's time for investors to pounce on this one.
The third-quarter results that soured the narrative surrounding the stock still delivered a 42% year-over-year revenue increase and an 83.3% gross margin, and the company is well-positioned to begin delivering significant profits. With its market capitalization having been pushed down to roughly $3.5 billion and the company valued at roughly 9.4 times this year's expected sales, Fiverr is a beaten-down stock capable of delivering huge returns for investors.
A bargain price for a disruptive force in insurance
Jason Hall (Lemonade): Over the past year and a half, insurance start-up Lemonade has gone from high-growth darling to a stock nobody seems to want in their portfolio. To a certain degree, I get it. Lemonade shares traded for more than $100 for most of early 2021, more than triple the $29 IPO price from six months prior. That put Lemonade's valuation at more than 15 times book value, a nosebleed value for any insurer, even one growing its customer count and book of business as quickly as it was.
LMND Price to Book Value data by YCharts
Mr. Market has swung to the other extreme. Trading for about two times book value, Lemonade is down roughly 78% over the last year and absolutely cheap. That's especially true when you factor in its incredible rate of growth.
Last quarter, Lemonade's in-force premiums were up 84% to $347 million, while its customer count was up 45% to 1.36 million. Lemonade continues to attract new customers at a very high rate, adding 150,000 new customers in Q3 alone. This was before launching Lemonade Car and the acquisition of Metromile (MILE), which will supercharge its growth in auto insurance.
Yes, there's still risk with Lemonade, because it is spending heavily on growth and needs to show it can be profitable at scale. For investors willing to take on the risk that it's just a niche product and can't break into the mass market, the risk/reward looks way too good to pass up.
