With the highest inflation seen in decades, looming interest rate hikes, Russia's invasion of Ukraine, and other market destabilizers, investors have had a dizzying array of risk factors to consider this year. Stocks could continue to see volatile trading in the near term, but big sell-offs have also made it possible to invest in great companies at much cheaper prices.
With that in mind, a panel of Motley Fool contributors has identified three top growth stocks that have fallen more than 25% across 2022's trading and are worth pouncing on. Read on to see why they think these companies are primed to rebound and deliver big wins for investors.
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The stock may be falling, but this business is on the rise
Jason Hall: PubMatic's (PUBM -0.14%) sell-side programmatic platform helps publishers maximize ad revenue, while advertisers and ad agencies maximize the return on their ad spend.
The proof that PubMatic's platform is delivering is in the results. Through the third quarter of 2021, its organic revenue had increased 50% or more for four straight quarters. The number of advertisers spending $1,000 or more increased 40%, and over 60,000 advertisers placed ads on its platform in the quarter. And as advertisers come on the platform, they increase their spend; net dollar-based retention was an incredible 157%.
It's not just empty revenue growth, either. Net income was up 118% in the quarter, a continuation of PubMatic's trend of growing profits -- and cash flows -- since going public:
PUBM Cash from Operations (TTM) data by YCharts
Just looking at the stock price, you wouldn't know PubMatic's business was doing so well. Shares are down 26% in 2022, and a brutal 64% from the all-time high.
Can PubMatic continue the high-quality growth? I expect it can, with a wonderful platform that seems to have growing appeal to stakeholders on both sides of the ad business, a strong founder-led management team, and great tailwinds. Eventually, investors will catch on, and a wonderful growth stock like PubMatic will prove a rewarding investment.
It reports fourth-quarter results on Feb. 28, so expect more volatility to come. But investors should put it high on their list of stocks to buy in March.
DraftKings is falling along with the broader sell-off of unprofitable growth stocks
Parkev Tatevosian: DraftKings (DKNG -1.35%) is having a rough start to 2022. The stock is already down 27% as of this writing. DraftKings offers consumers the ability to wager real money on daily fantasy sports, mobile sports betting, and iGaming. It's rapidly growing revenue as more and more states are legalizing the aforementioned activities. Indeed, annual revenue increased from $192 million in 2017 to $1.3 billion in 2021. What's more, the growth rate has accelerated for three consecutive years.
Management expects the momentum to continue and has forecast sales of $1.93 billion in 2022. DraftKings is now live with a mobile sports betting service in 17 states. Its iGaming app, which includes popular games like blackjack, is live in just five states. Legalizing mobile gaming activities is gaining favor with states because it increases tax revenue without the need to build brick-and-mortar casinos. Consumers like the mobile version better because of convenience; you can go from an impulse to a wager within seconds. Contrast that with the alternative of driving hours to reach your nearest casino.
Online gaming also has the potential to be more profitable. After all, you don't need as much staff to operate an app and website as you would need to maintain a massive building. It also makes the company less exposed to cyclical downtrends; brick-and-mortar casinos still need to be maintained regardless of how many customers visit.
Interestingly, profitability, or lack thereof, is the primary culprit for DraftKings' stock fall in 2022. The market is falling out of love with unprofitable growth stocks. DraftKings may be proliferating, but it is losing money on the bottom line, $1.5 billion in 2021, to be precise.
That said, the company is making excellent progress and offers investors a lucrative reward for the risk. Investors can feel good about adding DraftKings to their portfolios in March for those reasons.
Get a piece of the gig-economy revolution
Keith Noonan: With valuations for growth-dependent companies coming under pressure and Fiverr International's (FVRR -1.44%) sales growth slowing amid challenging bases of comparison and the easing of some pandemic related tailwinds, investors have sold the stock in droves. The gig-marketplace specialist's share price has fallen 36% year to date; it trades down roughly 77% from the high that it hit last year, and I think that the big sell-offs have created a great buying opportunity.
Fiverr's freelance labor marketplace is helping to pave the way for the future of work, and its growth story is just starting to unfold. The company's platform makes it easy for workers and employers to connect, and the business appears to be in the early stages of benefiting from some powerful long-term trends. The company ended last year with an average spend per buyer of $242, which was up 18% annually, but the company is just scratching the surface of its long-term expansion potential here.
Hiring on a freelance basis offers businesses the chance to cut down on costs related to employee benefits, office expenses, and payroll taxes. With flexible, high-quality labor being made increasingly available through online platforms, it's likely that the gig economy will see huge growth through the next decade. Fiverr is in great position to capitalize on this shift, and the stock has huge upside potential at current prices.
While Fiverr's sales growth is slowing as workers increasingly head back to the office and the business laps blockbuster periods from the peak of pandemic-related conditions, the business still managed to grow sales 43% year over year last quarter and 57% across 2021. With a non-GAAP (adjusted) gross margin of roughly 84% last year and huge potential for continued sales expansion, Fiverr has mouth-watering profit potential and could go on to be an explosive winner.
