It can be hard, but when things get frightening in the market like they are now, it pays to focus on long-term winners. Companies leading the way in high-growth industries can suddenly get cheap when the market is full of fear, uncertainty, and doubt.
Right now is one of those times. Four-out-of-five stocks in the Nasdaq Composite are currently trading at prices below their 200-day moving averages, a sign that price action is overwhelmingly negative across the market.
Smart investors use fear to their advantage and use these times to acquire great stocks at a discount. Don't know where to start? Here are three technology companies worth considering today.
1. DraftKings: Capitalize on the hot sports betting market
DraftKings (DKNG -2.83%) started in daily fantasy sports contests, but has aggressively pivoted as online sports betting and casino gaming become legal across the United States. Users in the appropriate states can now participate in all three types of gaming (fantasy sports, betting, and casino games) from one app.
Research firm Grand View Research estimates that the global sports betting market will grow 10% per year moving forward, and be worth $140 billion by 2028. Even though it's a competitive industry, the rise of digital betting has become a significant opportunity for players like DraftKings to take market share. DraftKings is aggressively spending on sales and marketing to acquire and retain users and fend off a sea of competitors. DraftKings' total sales & marketing expenses, the company's largest expenses, were $981 million in 2021, compared to its $1.3 billion in total revenue.
The high spending means that DraftKings is a ways off from turning a profit; the business lost $1.5 billion in 2021, and its financials remain the biggest risk investors face. However, the stock is now down more than 75% from its high, so there's arguably more potential upside for investors if the company executes moving forward. The stock's price-to-sales ratio is now six, its lowest as a public company.
2. Upwork: Redefine what it means to work
Upwork (UPWK 1.09%) is an online platform that connects companies with independent workers and freelancers. The COVID-19 pandemic has pushed companies to rethink the work environment, and more and more employers are now adopting remote and hybrid strategies. Upwork stands to benefit from this; its platform can provide tools to hire and compensate talent, providing the structure protecting both talent and employer.
The company isn't an explosive growth stock. It's averaged 25% annual revenue growth over the past five years, and 2021 revenue grew 35% year over year to $503 million. However, the company might maintain this growth for a while -- there was roughly $3.5 billion in volume (total value of work) on Upwork's platform in 2021. Management estimates that the entire global addressable market could be as large as $1.3 trillion, so there is a vast runway for growth moving forward.
Upwork's inching closer to profitability, targeting a break-even on EBITDA (earnings before interest, taxes, appreciation, and amortization) in 2022. As one of the prominent marketplace brands in remote and freelance work, Upwork could be a long-term winner that steadily expands for years to come. The stock currently trades at a P/S ratio of 6, its lowest since the March 2020 market lows, so investors could capture a lot of its future growth as share price appreciation if Upwork can keep growing.
3. The Trade Desk: This ad-tech stock is firing on all cylinders
The Trade Desk (TTD 1.78%) is a cloud-based ad-tech company that lets companies create and manage ad campaigns on the internet, social media, and connected TV. Meta Platforms and Alphabet have traditionally dominated the digital advertising space, but these companies hoard all the user data and make advertisers play by "their" rules. The Trade Desk is an independent ad exchange, giving advertisers more freedom and transparency into data.
The Trade Desk just closed out its fiscal 2021 year, growing revenue to $1.2 billion, a 43% increase over 2020. It's experiencing a boost to its business as marketing money continues funneling from "old" formats like broadcast TV to connected TV, which can target specific audiences with programmatic ads. Management pegs the global advertising market as an eventual $1 trillion opportunity, so investors are looking at a business still in its early innings.
Meanwhile, the stock is now down roughly 31% from its all-time highs, holding up far better than many companies in this growth stock bear market, a potential testament to the high quality of the business. Trade Desk is already very profitable despite its robust revenue growth, generating a net income of $455 million in 2021, good for a net profit margin of 38%. The stock's the most expensive of these three, trading at a P/S of 32, and it's still more expensive than it has been historically, but the strong growth and financials arguably support its valuation. Investors could use a dollar-cost averaging strategy if they are concerned about the stock's valuation.