Investors have faced turbulent conditions so far in 2022's trading. March 7 delivered the market's worst one-day sell-off since October 2020, and growth stocks have generally been falling out of favor as investors have prioritized companies with substantial profits and lower risk profiles.
While the multitude of risk factors on the table suggests that the market could continue to be volatile in the near term, I used the recent sell-off as an opportunity to build positions in a handful of growth stocks. Here's why I bought Unity Software (U -1.17%), Ubisoft (UBSFY 0.55%), and Impinj (PI 26.26%) this week.
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1. Unity Software
Unity Software provides development engine, analytics, and advertising services for the creation and monetization of video games. It's also making a push into content creation services for other visual mediums, and growth on that front will likely be significantly accelerated thanks to its recent acquisition of special-effects company Weta Digital and other studios in the space.
Unity stock is now down roughly 43% year to date and 61% from the lifetime high that it hit last November. After the big sell-offs, the content creation specialist's share price is up just 19% from market close on the day of its public debut in September 2020, and I think the recent pullback has created an attractive buying opportunity.
While Unity isn't profitable yet and investors seem to have given up on growth-dependent software stocks, the business has continued to post strong results and has huge room for expansion over the long term. Sales last year climbed 44% annually to reach $1.1 billion, management's midpoint target calls for growth of 35% this year, and I believe the company is in a fantastic position to benefit from the long-term growth of the global games industry and emerging trends, such as augmented reality and the metaverse.
2. Ubisoft
Like Unity, Ubisoft is a player in the video games space, but my bull thesis here is markedly different. While Unity has generally been posting very impressive business momentum, Ubisoft has struggled over the last year, and its growth prospects appear less promising. The France-based gaming publisher is best known for franchises including Assassin's Creed, Rainbow Six, and Ghost Recon, but it has seen some of its core properties lose some steam, and the interactive-entertainment industry is becoming increasingly competitive.
Earlier this year, Take-Two Interactive announced that it would be purchasing mobile games publisher Zynga in a $12.7 billion deal, and this news was followed by the bombshell announcement that Microsoft would purchase Activision Blizzard for $68.7 billion. Ubisoft's valuation has been pushed to a three-year low following recent market turbulence and some underwhelming business performance, and the company could be the next domino to fall in the gaming-industry consolidation trend.
Following big sell-offs, the company's market capitalization has been pushed down to roughly $5.7 billion. Ubisoft's relatively low valuation suggests that the stock could deliver strong returns for investors even if the company isn't acquired, but I think there's a good chance that the publisher will be bought out at a premium in the not-too-distant future.
3. Impinj
Impinj is a maker of radio-frequency-identification (RFID) tags, sensors, and software, and it could play a significant role in advancing the broader Internet of Things trend. The company's small, durable RFID chips can store rewriteable information and function without the need for a power source, and that makes them an intriguing solution for keeping track of nonelectronic objects and bringing everyday items into the world of networked data.
Impinj's products have already seen some adoption for tasks such as keeping track of retail inventory and airline baggage, but the business could just be scratching the surface of its long-term market potential. The stock surged last year thanks to signs of improving demand and rising profitability, but shares are now down roughly 38% from their high due to the market's increased aversion to risky plays.
With the company sporting a market capitalization of roughly $1.5 billion and valued at approximately 6.7 times this year's expected sales and 279.3 times expected earnings, Impinj still has a growth-dependent valuation even after recent pullbacks, and the long-term demand outlook for its products remains difficult to chart. Impinj probably ranks among the more speculative names in my growth-focused portfolio, but its products have revolutionary potential, and I think there's a good chance the stock will bounce back from recent sell-offs and eventually go on to reach new highs.
