Growth stocks have fallen out of favor over the past year amid a confluence of risk factors and shifting preferences in the market. As a result, many companies with forward-looking valuations have seen dramatic pullbacks in their stock prices from 52-week highs.
For long-term investors, that's an exciting prospect, because some of these stocks that have become way oversold will likely go on to eventually deliver fantastic returns. Let's take a closer look at two companies that are poised to bounce back and deliver incredible performance over the long term.
Image source: Getty Images.
1. Appian
With Appian's (APPN -1.25%) software, even employees with little or no coding experience can build, deploy, and modify applications. Granted, these aren't usually the kind of apps that are going to be rolled out to consumers, but that's not the company's focus. Appian's low-code software allows businesses to easily launch and update internal applications for streamlining functions and improving workflows, and its stock looks like a great buy on the heels of precipitous sell-offs.
Appian stock skyrocketed as investors poured into risky growth plays late in 2020 and early last year, but the stock has pulled back dramatically as investors have become more risk-averse and moved out of stocks that are viewed as being propped up by pandemic tailwinds. Shares now trade down roughly 77% from the lifetime high that they hit in January 2021.
APPN data by YCharts
Increased work-from-home operations meant that many companies had to build, test, and launch internal business applications to help facilitate the shift and keep growth engines chugging, and these pressures highlighted the value of Appian's software. While the business did see some positive catalysts related to virtual office and work-from-home trends, its growth actually accelerated as pandemic-related conditions eased in many parts of the world.
Appian's overall revenue climbed 21% in 2021, and its higher-margin subscription revenue grew 33% annually. Meanwhile, overall revenue increased 17% in 2020, and subscription revenue rose 31% in the year. After big sell-offs, the company now has a market capitalization of roughly $3.9 billion and is valued at approximately 8.8 times this year's expected sales. Long-term investors could score big wins with this innovative software provider.
2. Fiverr International
Fiverr International (FVRR -2.00%) is a leader in the gig-economy space. The company's online marketplace makes it easy for those hiring to connect with freelance workers. With the stock now down roughly 80% from the lifetime high it hit in February 2021, I think it's time to pounce on this one.
The company's platform is flexible enough to capitalize on the growth of new trends as they emerge. If demand in one category falls off, the business is diversified across a wide variety of job fields and will be able to easily move into supporting new listings to satisfy demand. Fiverr now hosts more than 550 digital-job categories and has recently added new categories, including NFT and 3D-content generation services to help keep up with exploding demand in these categories. Surging demand for freelance labor has helped it post fantastic growth over the last couple of years.
Image source: Fiverr International.
The company's midpoint guidance for annual revenue growth of roughly 26% might look disappointing in the context of the rapid sales growth that it posted in 2020 and 2021. However, it still points to solid momentum, and the company's long-term growth story is likely just getting started.
Fiverr posts stellar gross margins (82.6% last year), and it's already free-cash-flow positive. Free cash flow roughly doubled in 2021 to reach $35 million, and management's midpoint guidance calls for adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to climb roughly 31% this year. Hiring on a freelance basis allows businesses to cut down on expenses, including payroll taxes and employee benefits. Fiverr is perfectly positioned to benefit from these advantages and the long-term growth of the gig economy.
