Shares of growth stocks have been hammered over the past few months, and it's starting to look like there are now several good growth values in the market. What investors should focus on is finding companies with great operations whose stocks have simply been caught up in the broader sell-off.
The three stocks I'm most excited about right now are Coinbase Global (COIN 5.68%), Fiverr International (FVRR 3.74%), and Asana (ASAN 3.15%), which are down 52.1%, 75.4%, and 62.5% respectively from their 52-week highs. They have great businesses in growing markets, and patient investors should be rewarded for owning stocks like this. Let's find out a bit more about these three cheap growth stocks.
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1. Coinbase Global
The cryptocurrency market is booming, and Coinbase plays a key role for millions of users. The company is the entry point to crypto: It's where people buy cryptocurrency, trade or move assets to crypto wallets, and purchase NFTs.
Coinbase makes its money in this ecosystem by charging to make cryptocurrency purchases or sales, which has resulted in a highly profitable business. You can see below that net income over the past year was $3 billion, which means that with a $42 billion market cap the stock is trading for just 13 times earnings.
COIN Revenue (TTM) data by YCharts
Investors seem to think that a decline in cryptocurrency values over the last few months will hurt Coinbase, but that may not be the case. Management has said over and over again that the company makes money based on the volume of trading, not the value of cryptocurrencies, and volume is up over the last six months. On top of that, the company is expecting to launch an NFT marketplace soon, which CEO Brian Armstrong thinks could be bigger than crypto trading. This is a growth stock trading at a value, which is what I like to see as a long-term investor.
2. Fiverr International
Fiverr has more than tripled its revenue over the past three years with the help of trends related to work from home and more remote teams. But the stock has dropped recently as growth from the pandemic has started to slow.
As much as slowing growth can hurt, I think we're seeing a permanent shift of some work to more remote teams. And Fiverr will play a big role in connecting buyers and sellers in a freelance market.
FVRR Revenue (TTM) data by YCharts
Fiverr stock doesn't look as cheap as Coinbase at over 10 times revenue given the company's $3 billion market cap, but this is a company that could increase profitability rapidly. You can see above that Fiverr's gross margin is over 80%, so if it can begin to grow revenue faster than operating expenses it will increase net income very quickly. And with the tailwinds behind the freelance market, this is a stock I like long-term.
3. Asana
Productivity software company Asana is in the early phases of its growth, and while the stock isn't cheap at 27 times revenue, it's still a stock to get excited about. Revenue was up 70% year over year in the third quarter of 2021, and the company still has just 114,000 paying customers. But it has grown the number of paying customers 96% over the past year, and the number of customers spending over $50,000 with the company is up 132% to 739.
ASAN Revenue (TTM) data by YCharts
Not only can Asana grow by adding customers, it can grow by increasing the revenue it generates per customer, a tried-and-true strategy for a software-as-a-service stock. And similar to Fiverr, it has a lot of leverage on operations with a high gross margin.
As Asana improves its products, I think it will become more attractive to a larger number of companies, and that will ultimately drive growth. And if it grows anywhere near its current pace over the next few years, it's worth even a 27 price-to-sales ratio.
Growth is getting cheaper
After the recent sell-off, growth stocks are getting significantly cheaper than they were a few months ago. I think focusing on the best companies and buying while they're down will be a great strategy for long-term investors, and the market is starting to look very attractive today.
