It's been one of the toughest years on record for growth investors as the Nasdaq Composite falls for a seventh straight week, capping off a 28.3% year-to-date decline for the bellwether technology stock index. The S&P 500 index, which tracks the performance of the 500 largest companies in the U.S., is down 18.7% year to date and is on the edge of entering a bear market.
Amid the doom and gloom, investors should keep their eyes peeled for potential bargains emerging. The good news about falling share prices is that sometimes the baby gets thrown out with the bathwater, creating enticing investment opportunities for investors who stay alert. Plunging valuations also mean that the margin of safety increases for businesses that continue to grow both their top and bottom lines, increasing the chances of a better long-term total return.
Here are three growth stocks that continue to register business improvements and could very likely triple in share price once the selling is done.
Image source: Getty Images.
DocuSign
DocuSign (DOCU +0.95%) has seen its share price lose three-quarters of its value from its peak as investors get jittery over the company's prospects. The worry is that the electronic signature specialist could face a sharp slowdown for its cloud services as economies reopen and people return to their offices in droves. The company boasts more than a million paying customers and counts the top 15 of the Fortune 500 financial companies as its clients.
NASDAQ: DOCU
Key Data Points
To be sure, DocuSign is still posting strong financial numbers. Revenue for its fiscal 2022 ended Jan. 31 jumped 45% year over year to $2.1 billion. Gross profit increased by 50.7% year over year to $1.64 billion, and the company narrowed its net loss to $70 million from $243.3 million a year ago. Billings stood at $2.4 billion for a 37% year-over-year increase, and 97% of DocuSign's revenue comprised subscription revenue, which is both stable and predictable. The company has also been garnering larger customers over the years, with enterprise and commercial customers ending the fiscal year at 170,000, up from 125,000 a year ago. Its clients are also spending more -- 852 of them had annual contract values worth more than $300,000 compared to just 599 in the previous fiscal year. DocuSign's net dollar retention rate was healthy at 119%.
DocuSign remains confident in its further growth as e-signatures help automate and smooth out the contract-signing process and will not be going away anytime soon. For fiscal 2023, the company estimates that revenue can grow 17.5% year over year to $2.48 billion, and it has also been busy forging partnerships to extend its reach. An agreement was signed with Zoom Video Communications to enable easier and quicker signing of agreements through Zoom's videoconferencing software.
Okta
Like DocuSign, Okta (OKTA +1.37%) has also seen its share price shrivel by 70% from its 52-week high. The identity management specialist has more than 15,000 customers on its cloud platform and helps them control access for a wide variety of applications and programs.
NASDAQ: OKTA
Key Data Points
Part of the reason for the share price weakness could be attributed to a recent data breach that impacted up to 366 of Okta's customers. A hacker group compromised the company's Identity Cloud earlier this year, leading to a loss of confidence in the company. However, this is likely a one-off event that Okta can recover from given time, as it is one of the leading identity management platforms in the market.
Okta is still growing its top line at a rapid pace, posting a 55.6% year-over-year jump in total revenue for its fiscal 2022 ended Jan. 31. Subscription revenue made up 96% of revenue and grew by 56.8% year over year to $1.25 billion, and the company also generated free cash flow over the last two fiscal years. Like DocuSign, customers are spending more, with customers with more than $100,000 in annual contract value up 59% year over year to 3,100. Okta expects this momentum to continue into fiscal 2023, with revenue projected to grow by 37% year over year to $1.78 billion. A total addressable market of $80 billion has been identified that demonstrates Okta's potential to continue growing, and the company will rely on the improvement of its platform and international expansion as drivers of its growth plan.
Sea Limited
Sea Limited (SE 3.71%) is a global consumer internet company founded in Singapore with three distinct business divisions: e-commerce (Shopee), digital entertainment (Garena), and digital financial services (SeaMoney). The company has seen its share price plunge nearly 79% from its peak late last year as investors perceived a slowdown in its growth and the company pulled Shopee out of countries such as India and France.
NYSE: SE
Key Data Points
Investors should perceive these events as short-term blips that are part of the company's growing pains. Its recent fiscal 2022 first-quarter earnings show that Sea still has what it takes to grow -- total revenue surged by 64.4% year over year to $2.9 billion, with e-commerce division revenue nearly doubling year over year from $772.4 million to $1.5 billion. The gross margin also expanded from 36.6% a year ago to 40.4%.
Operating metrics for Shopee continue to impress -- gross orders soared by 71% year over year to 1.9 billion while gross merchandise value increased by 39% year over year to $17.4 billion. Sea's e-commerce clout in Asia should ensure that the company continues to grow its top line, albeit at a slower pace after its pullout. Garena, though, has seen quarterly paying users fall by 23% year over year to 61.4 million as its Free Fire game was recently banned in India. SeaMoney, though, has turned in a respectable performance, with quarterly active users up 78% year over year to 49 million and total payment volume climbing 49% year over year to $5.1 billion.
Sea Limited has also recently snagged a second digital banking license in Malaysia, adding to the Singapore one that it won back in December 2020. The winning of these two licenses should significantly boost the growth of the company's digital financial services division in the coming years. It may take a while before Sea Limited revisits its glory days, but the seeds of success have already been planted for the company.
