A falling stock price doesn't automatically mean it's a bad investment. It's important to remember that stocks are more than ticker symbols and numbers on a screen; they are little pieces of real businesses.
Admittedly, it's not fun to see your investments fall. You may start asking yourself: "Why didn't I just wait to buy it lower?" Volatility in stocks can be pretty humbling, especially after a stretch like early last year when it seemed investors could pick any stock and make money.
We're in an unofficial bear market, and many high-growth and technology stocks have lost most of their value over the past six to 12 months. Bear markets aren't picky; typically, everything goes down. Let's take a closer look at three great companies that got caught up in the broader market sell-off and have fallen to "fire sale" prices.
1. Graphics software stock: 80% off highs
Unity Software (U -0.79%) is a software company. Its two businesses include "Create," a subscription model where people pay to use its software engine to design and build 2D and 3D content. The "Operate" segment involves monetizing content through ads, in-app purchases, and analytics. Operate is the larger segment, representing 57% of Unity's first-quarter 2022 revenue.
The stock is down roughly 55% over the past month, partially due to soft guidance that Unity issued during its Q1 earnings. Management pointed to an internal issue where its ad algorithms ingested "bad data" from a large customer. The company is working to retrain its models but will cost Unity about $110 million in revenue in 2022.
However, this might be a great buying opportunity for long-term investors. Management said that revenue losses wouldn't go past this year, and the company should still grow revenue to $1.4 billion, a 28% year-over-year increase. Now, the stock has a market cap of just $12 billion. Otherwise, the business seems healthy; more than 1,000 customers spend $100,000 or more on Unity's business. The company has a 135% net revenue retention rate, which means customers spend more over time.
2. Data analytics stock: 70% off highs
Palantir Technologies (PLTR 0.64%) uses its two proprietary software platforms called "Gotham" for public sector clients and "Foundry" for private, to analyze data, and help its users make actionable decisions in real-time. Palantir often refers to itself as an "operating system," seeking to augment human intelligence rather than replace it with artificial intelligence.
The company got about 60% of its 2021 revenue from the United States government. Some investors have been cautious of Palantir since it went public because it relies on government business. Palantir's recent results show that the tide could be turning. Commercial revenue grew 54% year over year in 2022 Q1, and customer count grew 86% year over year. Meanwhile, government revenue grew just 11% year over year. If these trends continue, Palantir should be able to diversify its business over time.
The stock's fallen dramatically from its highs and now carries a market cap of about $14 billion. Financially, Palantir turned free cash flow positive last year but isn't yet profitable on the bottom line due to high expenses for share-based compensation. Palantir's revenue has been $1.6 billion over the past four quarters, and management expects that to grow at least 30% annually over the next few years.
3. Finance automation stock: 70% off highs
Bill.com Holdings (BILL -0.57%) is a software company that automates financial tasks for small and medium-sized businesses. This includes accounts payable and receivable, spend management, and payments. Many small companies rely on paperwork and fragmented systems because they lack the money and people big corporations have to stay on top of things.
The company has more than 147,000 customers and 3.2 million network members, suppliers, and other companies that integrate with Bill.com. The business did $518 million in revenue over the past year; total revenue grew 157% year over year in the quarter ending March 31. Bill.com has 124% net revenue retention, successfully cross-selling new products and features to existing customers.
Investors seem to think highly of the stock; it traded at a price-to-sales (P/S) ratio of roughly 100 in late 2021, making it one of the most expensive stocks on the market. Its falling price is most likely a result of a hot valuation cooling off in a volatile market rather than something fundamentally wrong with Bill.com. In other words, the current P/S ratio of 22 seems far more reasonable, making the drop a potential buying opportunity.