Since the Nasdaq Composite peaked in November, it is down by about 17%, and had plunged by even more. Concerns about inflation, the Federal Reserve's plans to fight it, and the strength of the economy have weighed on investors' minds. The growth-heavy index is still firmly in correction territory after a trip to bear country. However, the broad-based sell-off has created a number of buying opportunities.
The case for Amazon
E-commerce pioneer Amazon continued to dominate the online retail scene last year. Its marketplace accounted for 41% of digital sales in the U.S., according to eMarketer. That was up from 39% in 2020, and Amazon is unlikely to lose its foothold anytime soon. Its brand name has become synonymous with online retail, and its expansive logistics network has consistently set the bar for fast shipping domestically.
However, Amazon has also expanded into more profitable industries. Its cloud computing unit, Amazon Web Services (AWS), posted revenue growth of 40% in the most recent quarter, capturing an industry-best 33% market share. That put AWS 11 percentage points ahead of second-place Microsoft.
Amazon has also become a big player in the digital ad industry. Its revenue from advertising services jumped 32% in the most recent quarter, and it captured nearly 12% of U.S. digital ad spending in 2021. That put the company in third place behind Alphabet and Meta Platforms, but the popularity of its e-commerce site makes it a great place for marketers to reach consumers, and that competitive edge should help Amazon narrow the gap.
Overall, its revenue surged 22% to $470 billion in 2021, and earnings jumped 55% to $64.81 per diluted share. More importantly for shareholders, there are good reasons to believe that momentum will continue. Cloud computing and digital advertising are both higher-margin businesses than retail, and as they become bigger parts of Amazon's bottom line, its profitability growth could accelerate. And with shares trading at 3.3 times sales -- cheaper than their three-year average of 3.9 -- this growth stock looks like a bargain.
The case for Axon Enterprise
Axon specializes in technology for law enforcement agencies. Its best-known product is the Taser, a nonlethal electroshock weapon. But its portfolio also includes a growing ecosystem of software, sensors, and video recording devices. It's also the leading provider of body cameras and digital evidence management software for police forces.
Its product suite also includes in-car cameras and aerial drone-mounted cameras, as well as cloud-based applications for incident reporting and real-time situational awareness. For example, Axon Respond integrates video and location data from its ecosystem of sensors, keeping first responders and commanding officers up to date on field operations. Collectively, Axon's products help its clients -- law enforcement, fire departments, federal agencies, and more -- work more safely and productively.
That business model has produced strong financial results. Last year, revenue rose 27% to $863 million, and the company generated free cash flow of $74 million, up from a loss of $34 million in 2020. But the company still has plenty of room to run. Axon management estimates that its market opportunity is $52 billion, and is working to grow the company's product portfolio and further expand into international markets.
On that note, the company recently debuted Attorney Premier, a software platform for justice systems that helps prosecutors and defenders manage digital evidence. Axon also opened a new fulfillment center near Savannah, Georgia, that will accelerate shipping times to European countries. Domestically, Axon has customer relationships with 17,000 of the 18,000 U.S. law enforcement agencies. In the past, that competitive edge helped it successfully expand from sales of Tasers into software, cameras, and sensors, and it should continue to provide a powerful tailwind in the years ahead.
Yet its shares currently trade at 9.7 times sales, a little cheaper than their three-year average of 10.6 times sales. That's why now looks like a good time to buy this growth stock.