The U.S. equity market has been quite volatile in the past two months -- with several big-name stocks reaching harrowing lows. However, things may now be changing for the better. According to the latest AAII Investor Sentiment Survey for the week ended March 31, the individual investor mood for the stock market is mostly neutral.
Yet there remain several high-quality stocks that continue to suffer due to a weak macroeconomic environment and rising geopolitical tensions. This has opened attractive entry points for retail investors.
Teladoc Health (TDOC -1.43%) and Farfetch (FTCH -2.22%) are two such beaten-down stocks that are down by over 50% from their 52-week highs. However, both the companies are fundamentally strong and can start benefiting from improving investor sentiment.
Here are a few reasons why these two growth stocks can prove to be winning buys in the coming months.
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1. Teladoc Health
A leading telemedicine player, Teladoc's stock is currently down by over 63% from its 52-week high. In addition to macroeconomic pressures, investors' concerns about the adoption pace of telemedicine in the post-pandemic world are affecting the company's share prices. The $18.5 billion acquisition of Livongo Health in 2020 is now considered a challenge for Teladoc, especially since the combined company has been posting higher-than-expected losses in the past two years.
Yet the company's current operational and financial performance paints a far more optimistic picture. Telehealth is a permanent trend due to higher convenience and reduced costs for patients. The company is well-poised to capture a larger share of the global telehealth and telemedicine market, estimated to grow from $87.8 billion in 2022 to $285.7 billion in 2027, thanks to its first-mover advantage and established brand presence in this burgeoning space.
Teladoc reported 15.4 million total patient visits in 2021, a year-over-year jump of 38%. Revenues were up by 86% to $2.03 billion, and the company reported $194 million in cash flows from operations. Although not yet profitable, the company managed to reduce its loss per share from $5.36 in fiscal 2020 to $2.73 in fiscal 2021.
Teladoc has estimated its total patient membership to be 54 million to 56 million in fiscal 2022, a year-over-year increase of 1% to 5%. While the membership growth rate is expected to be muted, the company is assuming robust expansion in revenue per member, driven by improving product mix and rising product penetration. Teladoc is making rapid inroads in underserved areas such as primary care, mental health, and chronic care with its virtual care offerings.
Teladoc recently launched a chronic condition management solution called Chronic Care Complete, which provides personalized support to patients with chronic conditions. This solution can prove to be a major beneficiary of the aging demographics in the U.S.
The company has also teamed up with Amazon to introduce voice-activated general medical virtual care on certain Echo devices. This partnership can prove to be a major growth driver for Teladoc in the coming years.
With several strong drivers fueling Teladoc's future growth trajectory, the current pullback in share prices can prove to be an ideal buying opportunity for investors.
2. Farfetch
Shares of online luxury fashion platform Farfetch are down by 73% from their 52-week high. However, this sell-off seems quite unjustified for this high-quality stock, considering that the company is riding several long-term tailwinds and posted better-than-expected fourth-quarter (ended Dec. 31, 2021) results, despite a difficult macroeconomic environment.
Farfetch's CEO José Neves expects the global fashion industry market opportunity to expand from its current $300 billion value to $500 billion by 2025. To capture a major chunk of this underpenetrated opportunity, Farfetch has opted for a multi-pronged strategy, involving multiple channels for first-party and third-party sales.
Farfetch operates an online luxury fashion marketplace offering merchandise across 1,400 luxury sellers to customers in over 190 countries. The company is involved in direct-to-consumer sales as well as in-store sales of certain luxury brands.
Despite being the largest global online luxury fashion platform, the Farfetch marketplace accounts for less than 2% of the personal luxury goods market -- highlighting the growth potential for future years. In 2021, Farfetch's third-party take rate (that's the commission paid by sellers operating on the company's platform) rose year over year by 60 basis points to 30.2%.
A high take rate is indicative of the importance of this platform to luxury goods sellers. The company is also shifting its business away from discounted promotional sales to full-price sales, which has translated to a 1.4% year-over-year rise in marketplace average order value (AOV) to $635.
Farfetch's marketplace continues to witness solid traction in two of its largest markets: the U.S. and China. China is the company's second-largest luxury market by gross merchandise value (GMV). According to Bain & Company, China is expected to be the global leader in the luxury market by 2025. Farfetch accounted for over 10% GMV in the Chinese luxury space in 2021.
In this context, the recent announcement of the Chinese government to support the economy is also a solid positive for Farfetch. Additionally, Chinese e-commerce giant Alibaba also has a 12.5% stake in the Farfetch China joint venture.
In fiscal 2021, Farfetch's GMV was up 33% year over year to $4.2 billion. This record performance helped drive up revenues by 35% year over year to $2.3 billion. 2021 also marked the company's first full year of adjusted EBITDA profitability.
Against the backdrop of multiple growth drivers and rapidly improving financials, Farfetch's stock seems well-poised for a robust recovery in the coming years.
