It looks like we are in a market akin to the early 2000s, which saw the technology sector plummet after a years of speculative frenzy amid geopolitical turmoil.
But for every Pets.com that went bankrupt, there were also long-term survivors such as Amazon.com, which at one point fell 90% during that period. Yet those who held their noses and bought in that crash -- and chose wisely -- went on to make fortunes.
Amid the tech wreck today, here are three high-quality companies down big from their highs, but which don't deserve to be. Long-term investors should take note.
NASDAQ: MQ
Key Data Points
Marqeta
Payments firm Marqeta (MQ 3.27%) has been absolutely hammered, perhaps due to the fact that it's a newly public stock that had its initial public offering (IPO) in June of 2021 at $27 per share. Fast forward to today's "risk-off" environment, and the stock trades below $9, despite impressive business performance by any measure.
Marqeta operates a technology platform that allows card issuers to flexibly tweak the properties of the card. That's highly relevant to a variety of applications, from grocery delivery start-ups, which give Marqeta-powered cards to drivers to fulfill specific orders, all the way to the largest banks, which offer Marqeta-powered digital cards for corporate customers. Even cryptocurrency companies are using Marqeta to allow their customers to make crypto-backed purchases.
In its recent fourth-quarter earnings report, Marqeta handily beat analyst expectations, with revenue surging 76% on total payments volume (TPV) growth of 108%. The company even turned a surprise profit on an adjusted EBITDA basis (earnings before interest, taxes, depreciation, and amortization) as margins widened more than expected.
Marqeta also guided for strong 48% to 50% growth in the next quarter. Though EBITDA should dip back into the negative, this is because the company is aggressively expanding technology and product investments, while leaning into new geographies across Southeast Asia. Marqeta was just certified in Singapore, Thailand, and the Philippines, which are high-potential markets where digital banking is still underpenetrated. Marqeta also just landed banking giant Citibank (C 0.42%) to tokenize Citi's corporate card clients into mobile wallets -- a big win for this young company.
According to management, Marqeta only processed less than 1% of card transaction volume domestically and even less internationally, so its opportunity is vast. Now at just a $5.5 billion market cap with $1.7 billion in cash and no debt, Marqeta could be a multi-bagger.
Image source: Getty Images.
Lam Research
It has also been a surprise to see Lam Research (LRCX +1.83%) sell off so much this year, given that we are in a semiconductor shortage. Lam is one of only three major global manufacturers of etch and deposition equipment needed to make more chips, so demand remains strong.
Still, macroeconomic fears have punished Lam, which is down 32% on the year after hitting all-time highs late in 2021. In fact, Lam has sold off even more than other semiconductor equipment stocks, and trades among the cheapest of front-end equipment manufacturers at just 15 times earnings.
That could be because supply chain issues seem to be hitting Lam fairly hard. Management recorded a sequential decline in equipment sales last quarter, and also guided for only modest revenue growth next quarter. Due to temporarily high logistics costs, earnings are actually forecast to decline slightly at the midpoint of guidance, which investors didn't love to see.
Yet all of these shortfalls are due to supply constraints, not end demand. Looking under the hood, and Lam's deferred revenue, or prepayments for revenue to be recognized in the future, grew a lot, rocketing 31.5% higher just over the prior quarter -- not the prior year, the prior quarter.
That seems to prove the end demand is there and will be fulfilled once supply constraints are worked out. For the calendar year 2022, Lam's management sees the semiconductor front-end equipment industry growing to over $100 billion, up from the mid-$80 billion range last year. That amounts to roughly 20% growth, if Lam can work out its supply constraints.
Meanwhile, Lam's very large services business grew strongly last quarter, up 30%, even as machine sales were held up. Services revenue, which made up 35% of revenue last quarter and is tied to the installed base, should continue to grow strongly after two years of booming machine growth.
A stock that trades at 15 times trailing earnings, yet which could very well have 20% growth or more this year, is a steal, which is why Lam Research looks like a bounce-back candidate.
LendingClub
It has also been a remarkably undeserved fall for LendingClub (LC 1.00%), which just can't seem to get the respect of fintech investors.
LendingClub has traded like a profitless, high-multiple fintech stock for the last few months, meaning it is down a lot. However, in the wake of last year's acquisition of Radius Bank, LendingClub is now a digital neo-bank, and is therefore much more profitable than the typical high-growth fintech platform. In fact, at just 11 times this year's earnings estimates, LendingClub trades even cheaper than the large money center banks Bank of America, JPMorgan Chase, and Wells Fargo.
LC PE Ratio (Forward) data by YCharts
And this is in spite of management's guidance for roughly 40% revenue growth and 650% earnings growth this year -- clearly much more exciting than a large-cap, low-growth traditional bank.
While there is underwriting risk in personal loans, where LendingClub specializes, LendingClub was a first-mover and has a data advantage going back to 2006. Furthermore, LendingClub has transformed itself from a high-yield lender into more of a Prime lender, with borrowers with good FICO scores who make $100,000 or more in income. So it's a lot less risky than it used to be.
LendingClub serviced $12.5 billion in personal loans as of last quarter, either held on its investors' books or its own, while the U.S. revolving credit market is over $1 trillion. And LendingClub is just beginning its foray into auto loan refinancing, which is an even larger $1.4 trillion market.
With less risk than believed and impressive growth ahead of it, LendingClub looks far oversold. It's another strong bounce-back candidate in 2022.
