It's been a choppy couple of months for the stock market. With uncertainty around the economy, some investors have fled growth stocks in favor of value. The Vanguard Value ETF returned 6.34% over the last three months at the time of writing, which outperformed the Vanguard Growth ETF's negative return of 0.18%.
Growth stocks, however, are where investors find the big winners over the long term. But finding them at good values can be difficult. The near-term concerns over the prospect of higher interest rates, inflation, and the broader economy are giving investors a chance to find some good deals.
Here's why Zoom Video Communications (ZM 1.66%), Logitech International (LOGI 0.57%), and Avid Technology (AVID) are moving toward the top of my buy list in 2022. Let's find out a bit more about these three growth stocks.
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1. Zoom Video Communications
A mad rush for video calls during 2020 pushed Zoom's share price into the stratosphere. Revenue growth accelerated to triple-digit percentage rates over several quarters. However, growth has decelerated in recent quarters, which has sent the stock price crashing.
The decline in the share price can be chalked up to Zoom's extremely high valuation at the start of the year. It's now quite cheap relative to Zoom's recent growth and future opportunities, where organizations are still adopting video conferencing tools.
While Zoom's growth has slowed, third-quarter revenue growth still looked solid at 35%. Management noted strong demand across the business, particularly for Zoom For Government and its cloud-based Zoom Phone.
Global video conferencing is expected to grow from $9 billion to $22 billion over the next four years. The opportunity is certainly there for Zoom to make money for shareholders, and Zoom's valuation now looks a lot more attractive after the sell-off. The stock currently trades at a price-to-earnings ratio of just 32 based on this year's earnings estimates, which could be bargain territory for this fast-grower.
2. Logitech
Logitech is a leader in computer peripherals and is well-positioned to benefit from growth in video conferencing, esports, content creation on streaming platforms, and remote work. Like Zoom, the market has punished the stock for decelerating growth over the last year, but the stock now sells for a tempting valuation of just 19.5 times forward earnings.
The market is focused on the small 4% increase on the top line in the last quarter, where management is also calling for flattish growth for the full fiscal year. But what's important is that Logitech is maintaining its high sales volume from the year-ago quarter, when sales jumped 75% year over year. This sets up Logitech for a return to growth once the difficult growth comparisons are behind it.
At the current valuation level, the stock should outperform the broader market over the next five years. More than 3 billion people are expected to be playing video games by 2023. Gaming, remote work, and the growth in digital content are big tailwinds that should lead to good returns from Logitech.
3. Avid Technology
Avid provides a range of subscription-based software solutions for TV broadcasts, music composition, live sound, and video editing. Many of the movies, music, and TV broadcasts consumers enjoy every day were created using Avid's software tools. Unlike Zoom and Logitech, Avid's share price has doubled over the last year following improved operating results in 2021, but it's just getting started.
One thing to like about Avid's business is that three-quarters of its revenue is recurring, based on long-term subscriptions with customers. This provides good visibility into future growth and warrants a high valuation, but the stock looks cheap right now.
The stock sells at just 21 times this year's earnings estimates, despite 35% year-over-year growth in the subscription count in the third quarter. For the full year, revenue is expected to increase by 11% for 2021 based on management's guidance. But Avid could see its top line accelerate over the next few years, considering the recent momentum with subscriptions and long-term trends benefiting the business.
The media industry is in the early stages of adopting subscription-as-a-service solutions. One opportunity worth watching is the increasing number of individuals creating content on Alphabet's YouTube and other streaming platforms. This is a long-term trend that is boosting demand for Avid and Logitech's products. Avid generated just $395 million in revenue over the last four quarters, but management estimates its addressable market at over $13 billion. This is a promising small-cap growth stock to consider.
