Investors can have a hard time understanding bear markets. People commonly assume that a stock going up is a "winner" and a falling stock a "loser." Understandably, many begin questioning their investments when they fall 10%, 30%, or 70% in some cases, like many growth stocks over the past year.
It's important to understand that markets can be irrational in the short term; emotions can be like a tide that raises or sinks all ships. So when you see an enormous portion of the stock market falling to new lows, it might not mean that anything is wrong with your investments!
Times when investors are scared and indiscriminately sell their stocks can be an excellent time for long-term investors to buy into the fear and build investments that could generate great long-term returns. Here are three stocks that could soar when market fears subside.
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1. Axon Enterprise
NASDAQ: AXON
Key Data Points
Public safety company Axon Enterprise (AXON 1.25%) sells several products to help maintain safety in society, including tasers, body cameras, and software that helps law enforcement manage evidence and daily operations.
Law enforcement has a challenging job of balancing the safety of officers themselves, suspects, and the surrounding public while in the public eye as community cornerstones. Many politicians believe that investments in public safety can improve law enforcement's transparency and efficiency, which creates an addressable market that Axon estimates to be worth more than $52 billion globally.
Axon's story could make it popular with ESG investors, but the company has financials that should appeal to everyone. The company generates $348 million in annual recurring revenue and posted a positive net income of $55 million in the first quarter of 2022.
Meanwhile, the company has $424 million in cash and equivalents against no debt. Axon's averaging 25% annual revenue growth over the past 10 years, so the business is a profitable and steady growth stock that could rebound nicely when the market moves higher. It's currently down more than 50% from its high of $209. At a price-to-sales ratio (P/S) of just over 7, the stock hasn't been this cheap since the market crashed in March 2020.
2. Crowdstrike Holdings
NASDAQ: CRWD
Key Data Points
Cybersecurity company CrowdStrike Holdings (CRWD 4.01%) provides cloud-based protection for "endpoints," the computers and other devices that connect to a network. The company has more than 16,000 paying customers who pay for modules to unlock the specific protection features they need.
Data is becoming increasingly critical to modern businesses, and security breaches can be financially devastating. The average security breach can cost an enterprise upwards of $4 million. CrowdStrike has averaged 94% revenue growth over the past five years and is now doing $1.7 billion in recurring revenue. It estimates the value of its total market opportunity at $55 billion, leaving a lot of room for growth.
CrowdStrike may not yet generate positive net income -- that's bottom-line profit -- but the business is very lucrative on a cash-flow basis. The company is generating $0.30 in free cash flow from every revenue dollar, despite heavily investing in research & development and marketing to innovate and grow the company. The stock is now down more than 50% from its high of $298. The stock still isn't a bargain at a P/S ratio of 24, but it's the lowest multiple since mid-2020, when the stock was coming out of the March 2020 lows.
3. DLocal Limited
NASDAQ: DLO
Key Data Points
Payments technology company DLocal Limited (DLO +0.27%) is helping e-commerce companies do business in emerging markets. Many countries in regions like Latin America, Asia, and Africa have many currencies and very fractured banking systems. This leads to issues like regulation and tax differences, fraud, and complicated payment methods. DLocal's platform helps global merchants transact in local currencies, making e-commerce straightforward.
DLocal is rapidly growing; the value of transactions on its network has grown an average of 114% per year from 2016 to 2021. The company reported 2022 Q1 earnings and had total payment volumes of $2.1 billion during the quarter. Management believes that total payment volumes for the markets it operates in could surpass $1.1 trillion by 2024, so there is a vast market the company can grow into moving forward.
Despite its rapid growth, the business itself is profitable, posting consistently positive EBITDA (earnings before interest, taxes, depreciation, and amortization). Non-GAAP (adjusted) EBITDA grew 84% year over year in 2022 Q1 and 13% from the prior quarter. The company will likely hold as much cash as possible to fund growth. Long-term investors might see eventual share repurchases if DLocal maintains healthy profitability over the coming years. The stock is down almost 70% from its high at $73. The stock once traded at a P/S of 120, a sky-high valuation that has fallen dramatically to 30, nearly its lowest since the company went public last summer.
