Famous investor Warren Buffett once said to be "fearful when others are greedy, and greedy when others are fearful." How does that relate to the investing environment we find ourselves in these days?
Well, there's certainly a lot of trepidation in the stock markets at the moment. Investors are really worried about global conflicts, inflation, and supply chain issues worldwide. A lot of that fear is showing up in the dropping prices of so many growth stocks over the past several months.
But those price drops mean that many technology-focused growth stocks are much less expensive than they were a year ago, and in some cases that presents the opportunity to get a little greedy. Here are three hypergrowth technology stocks trading at a discount that still have what it takes to grow for years to come.
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1. Airbnb: Empowering people to live anywhere
Airbnb (ABNB -1.35%) is a marketplace for people looking to rent property, typically for short durations. Airbnb has become so popular with travelers that the company name is becoming a verb, much like people talking about ride-hailing services say "Let's Uber to the club." More than 300 million nights were booked on Airbnb in 2021, generating a total gross merchandise value (GMV) -- the total dollar value of these stays -- of $46.9 billion. Airbnb takes a percentage of that GMV as a service fee and generates revenue. The company's 2021 revenue was $6 billion, a 77% increase from 2020.
The company is reporting more extended stays by customers, with nearly half of customers' visits lasting longer than a week. There were roughly 6 million active listings on Airbnb at the end of 2021, and Airbnb is actively trying to recruit more to fuel future growth. As most of the company's rentals are residences rather than hotels, there are hundreds of millions of residences worldwide to potentially be incorporated into the network of available sites.
Airbnb went public in late 2020 as one of the most hyped IPO stocks in recent memory. Today, shares are trading at roughly the same price as when Airbnb debuted on the public market. Its price-to-sales (P/S) ratio is 16, not a bargain, but the lowest it's been since the stock's IPO. Investors could do well with a long-term mindset as Airbnb seems poised to continue expanding over the coming years.
2. Zscaler: Securing the world
Zscaler (ZS -0.70%) provides cloud-based cybersecurity, detecting threats in the cloud instead of using on-premise company networks limited to the physical location where they operate. This is important in a world where there are increasing remote work opportunities, as well as increasing applications that run on the cloud instead of being locally installed on devices.
The company has more than 5,600 customers worldwide and blocks more than 150 million threats each day. Cybersecurity is likely to remain a hot investment category moving forward due to the digital nature of the global economy. According to MarketsandMarkets research, the global market for cloud security could grow from $41 billion to $77 billion by 2026. Zscaler's management expects annual revenue of $1 billion in 2022, a roughly 50% year-over-year increase, so there's a lot of room for growth moving forward.
Stock traders seem to hold Zscaler in high regard at the moment; the stock commands a hefty P/S ratio of 42, even after share prices have fallen 30% from their highs. Investors will need to pay up to own the stock, but Zscaler's long growth runway should help the company grow into its valuation over time. A dollar-cost averaging strategy would be a helpful tool to acquire shares slowly.
3. UiPath: Automating the workforce
UiPath (PATH 0.86%) makes robotic process automation (RPA) software tools. Instead of paying an office clerk to do something repetitive, like filling out time card forms, UiPath's software can monitor how employees work and then learn and begin automating the task. Companies are using UiPath to increase productivity while spending less on human employees.
More than 9,630 companies worldwide automate tasks with UiPath, and the company's software tends to expand as more people and departments begin implementing it. The number of customers spending at least $1 million annually on UiPath nearly doubled from 74 in the third quarter of 2021 to 135 in Q3 of fiscal 2022 (ended Oct. 31, 2021). UiPath's revenue is $818 million over the trailing 12 months, growing at an annual rate of 62% over the past eight quarters. The company's long-term vision is of a "fully automated" enterprise, creating a potential market that management estimates will be worth $30 billion by 2024 and $60-plus billion over time.
The stock went public in April 2021, a volatile time in the markets. Investors have sharply cooled on growth and tech stocks over the past year, and UiPath has fallen 60% from its all-time high. The stock now trades at a P/S ratio of 18, its lowest since going public. Investors could see strong long-term returns if UiPath maintains strong revenue growth moving forward.
