The consumer price index moderated slightly in April, rising 8.2% over the past year on a seasonally adjusted basis. While that indicates some improvement from March, prices are still climbing quickly, and inflation has exceeded the Federal Reserve's 2% target for fourteen consecutive quarters.
That news has Wall Street worried about a recession. Prices can only rise so long before consumer spending slows and corporate profits fall. To hedge against that risk, many investors have sold stocks, especially those perceived as risky. That domino effect has caused the S&P 500 to drop 16% from its high, but it has also created an opportunity for long-term investors.
Here are two growth stocks worth buying right now.
Image source: Getty Images.
1. Airbnb
Airbnb is reshaping travel and tourism. Its platform connects 4 million hosts with potential guests, helping people find places to stay in tens of thousands of cities around the world. Thanks to its marketplace-style business, Airbnb can add new properties to its platform in minutes without spending millions of dollars. No hotel can match that agility or efficiency.
Airbnb's business model also creates a powerful network effect, because each guest creates incremental value for each host, and vice versa. As a result, high-demand destinations typically see the greatest growth in supply. For example, non-urban listings jumped 15% in the first quarter as more people planned rural getaways in the wake of the pandemic.
In short, Airbnb is disrupting the travel and tourism industry with an asset-light business model, and that competitive advantage has translated into strong financial results. In the past year, revenue climbed 93% to $6.6 billion, and free cash flow rocketed to $2.8 billion, up 434% from the prior year.
Going forward, Airbnb's capacity for innovation should keep it on the cutting edge of the travel industry. Flexible search parameters are a great example. Travel websites typically need to know when and where you plan to travel. But guests on Airbnb can omit that information to surface personalized recommendations. Put another way, Airbnb is equal parts bookings tool and inspiration engine.
Additionally, the company simplified the host onboarding process last year, and it introduced AirCover -- free damage protection and liability insurance for every host on the platform. No other player in the industry has a similar offering. Growth initiatives like that should keep Airbnb's business firing on all cylinders, helping it capitalize on its $3.4 trillion market opportunity. That's why this growth stock belongs in your portfolio.
2. DocuSign
Businesses are built on agreements. Organizations require employees, customers, and partners to sign a variety of documents on a daily basis, from new hire paperwork and purchase orders to service requests and termination letters. But the paper-based, manual processes used to prepare and act on those agreements are slow and costly. So DocuSign is shaking up the industry.
Its platform, the Agreement Cloud, is built around DocuSign eSignature, its industry-leading software that allows clients to send and sign digital documents in a legally binding manner, from virtually any device or location. The Agreement Cloud also includes tools for automated document generation, identity verification, electronic notarization, and payment processing.
In short, DocuSign helps clients work more quickly and efficiently by automating and digitizing agreement workflows. And while it faces competition from Adobe Sign, DocuSign has distinguished itself by building a broad portfolio of adjacent products. That has been a powerful growth driver.
In fiscal 2022 (ended Jan. 31, 2022), DocuSign expanded its customer base 31% to 1.1 million, and the average customer spent 19% more. That shows that management's land-and-expand growth strategy is working. In turn, revenue rose 45% to $2.1 billion, gross margin expanded nearly 300 basis points to 78%, and free cash flow skyrocketed 107% to $445 million.
Of course, Wall Street was fixated on billings growth -- a leading indicator of revenue -- which decelerated to 35% last year, causing DocuSign stock to crash after its earnings report. But I'm less concerned. Some deceleration is natural as the impact of the pandemic fades. Moreover, during the earnings call, management noted that the focus had shifted back to demand generation, and DocuSign excelled in that area prior to the pandemic.
Right now, the company values its addressable market at $50 billion, and given its strong competitive position -- DocuSign holds 70% market share in the e-signature space, and it's a leader in contract lifecycle management and agreement analytics -- the company is well positioned to grow its business in the coming years. On that note, with shares trading at 7.4 times sales -- significantly cheaper than their three-year average of 21.8 times sales -- now is good time to buy this beaten-down growth stock.
