Concerns surrounding interest rate hikes and frothy valuations have turned the market against growth stocks, and many of these companies are suffering as a result. But amid these headwinds, it's more important than ever for investors to keep a long-term mindset.
Even if they lag the market in the coming months, some growth stocks have what it takes to deliver above-average returns in the next decade and beyond. Let's look at two such promising stocks: Tandem Diabetes Care (TNDM 0.43%) and Fiverr International (FVRR 1.34%).
1. Tandem Diabetes Care
Tandem Diabetes Care develops medical devices to help make the lives of diabetes patients a bit easier. Diabetes is, of course, a severe chronic health condition, but worse, the number of patients suffering from this illness is projected to continue growing rapidly.
That means there will be an increasing need for the types of products Tandem Diabetes makes. The company's crown jewel at the moment is the t:slim X2 insulin pump, which makes up the lion's share of its sales.
There are three reasons why this product is attractive to diabetes patients. First, insulin pumps are much less painful than injections, the primary alternative way for people with diabetes to manage their blood sugar levels. Second, there is evidence that insulin pumps help diabetes patients achieve better health outcomes.
Third, the t:slim X2 insulin pump is smaller than competing products, and it boasts other innovative features such as the ability to be paired up with DexCom's continuous glucose monitoring system, the G6, for automatic insulin delivery.
Image source: Getty Images.
These factors help explain why Tandem Diabetes continues to deliver solid revenue growth. In the third quarter (ended Sept. 30), the company's sales jumped 45% year over year to $179.6 million. The company's worldwide pump shipment grew by 43% year over year to 31,558.
Further, Tandem Diabetes turned the net loss of $9.4 million it recorded during the year-ago period into a net income of $5.8 million this time around. Tandem Diabetes hasn't been profitable for that long, and it is still not consistently so. But the massive opportunities at its disposal in the diabetes market will help on that front.
In the U.S., only 36% of patients with type 1 diabetes use insulin pumps. That number is only 12% abroad, which shows that there remains significant room for growth in this market. That's why the stock market's recent worries shouldn't stop investors from buying shares of this exciting healthcare stock.
2. Fiverr International
Fiverr helps connect freelancers to those who need professional services. The company's success -- and future -- are tied to the rise of the gig economy, which experienced a boom during the pandemic. But this isn't just a pandemic trend.
Both freelancers and the businesses who seek their services benefit from this rising megatrend. For a company, it is easier, cheaper, and faster to hire a freelancer as opposed to an employee. In other words, it helps the business save time and money.
And naturally, Fiverr helps professionals easily and quickly start a side gig. The company makes money by charging transaction fees to both buyers and sellers on its platform. In the third quarter (ended Sept. 30), Fiverr's revenue jumped by 42% year over year to $74.3 million.
Notably, the number of active buyers on the platform continues to grow -- registering a 33% year-over-year increase in the third quarter to 4.1 million.
Image source: Getty Images.
However, attaining profitability is still a challenge. The company recorded a net loss of $14.3 million during the third quarter, which was much worse than the net loss of $454,000 reported during the year-ago period. The red ink on the bottom line may be a worry for some investors, especially considering current market conditions.
Those companies that remain unprofitable are likely to get hit harder by whatever the market has in store for growth stocks. Fiverr's shares are already down by almost 70% in the past year, mainly because the increased activity it experienced at the peak of the pandemic cooled down significantly.
But once again, what matters is the company's long-term thesis. The online gig economy is arguably still in its infancy. Fiverr estimates its addressable market to be $115 billion. And one thing that will help the company capture even a fraction of this market is its growing competitive edge.
Buyers seeking top freelancers will tend to gravitate toward those platforms with the largest pool of potential workers to choose from, one of which is Fiverr. Meanwhile, freelancers seeking a vast clientele will turn to the most popular online marketplace, and so forth, in a powerful demonstration of the network effect.
That should help Fiverr produce increasingly strong financial results, turn the losses into earnings, and perform better than the broader market over the long run.
