With the stock market plunging into bear market territory (down 20% from its all-time high) on May 20, investors may fear what's next. It's OK to have feelings of uncertainty or fear, but the most critical task for investors is to stay in the market.
With that in mind, there are several incredible values in the market now. Shopify (SHOP -1.16%), Twilio (TWLO 1.82%), and MercadoLibre (MELI -1.26%) have sold off far beyond the major indexes but are still thriving businesses. Their share prices climbed too far ahead of actual business results last year, and they've paid a steep price year to date. However, I'd argue the stocks have now fallen too far behind, giving growth investors a chance to put their value caps on.
Shopify's software allows businesses of all sizes to manage an e-commerce store. With tools to ship products, process credit cards, and utilize basic website templates for only $29 per month, the relative cost of Shopify's software is low. However, the company makes most of its money by collecting processing fees on the sales generated through its platform.
In the first quarter, its merchant solutions division grew revenue 29% year over year and made up 72% of the top line. Most growth for this division primarily comes from increasing gross merchandise volume (GMV), but this could be in peril.
With Walmart and Target both issuing warnings about consumers becoming more conscious of their spending, any business in the retail space has reason to be concerned. However, Shopify's management was bullish on its last conference call, projecting more robust growth later in the year. Overall revenue was up 22% in the first quarter, not too shabby for what management considered a weaker period.
As for valuation, Shopify's valuation is at its lowest level since 2017, slightly over nine times sales. Furthermore, the stock is trading below its pandemic low, meaning the the company is getting no credit for the approximately 190% revenue and GMV growth it recorded between 2019 and 2021.
While Shopify stock could experience continued weakness over the next few months, it's hard not to see the value it presents long term.
Twilio's tools allow clients to easily program communication protocols into their systems using APIs (application program interfaces), which takes care of the coding work. This software allows non-software engineers to add text message confirmations for appointments, expert video support, and reliably distribute marketing emails. Twilio's customer base numbers more than 268,000, showing how many businesses find the product useful.
Because Twilio bills its customers based on usage rather than a flat monthly rate, its expansion rate reveals how customers increase their spending. This metric tallied 127% in the first quarter, which means existing customers spent 27% more than they did in the prior-year period.
Software engineers can replicate Twilio's products, but the cost and time to do so isn't worth it for most companies. As a result, Twilio's tools are sticky, and most customers will find it difficult to operate without them after adoption.
Regardless, management sees 30% or more organic revenue growth through 2024. But Twilio's valuation is sitting near an all-time low at less than six times sales and, similar to Shopify, the stock trades close to its pandemic bottom. Twilio has at least three years of solid growth ahead of it and a product that won't be massively affected by a recession. Investors should strongly consider adding Twilio to their portfolio.
While there is skepticism surrounding U.S. consumers, Latin America isn't in nearly as dire of a situation. MercadoLibre operates an e-commerce store, fintech platform, consumer credit division, and shipping logistics solutions in 18 countries. In its first-quarter conference call, management mentioned inflation once, versus Amazon, which mentioned it 22 times.
However, MercadoLibre doesn't have much to complain about. Revenue grew 67% year over year to $2.2 billion during the quarter, and its fintech division in particular saw massive growth, up 113% to $971 million. While Latin America will experience its own macroeconomic headwinds, the region hasn't fully built out its e-commerce network yet, so MercadoLibre still has a long-term growth opportunity ahead of it.
But don't tell the stock market that. MercadoLibre is now valued at the lowest it has ever been, besides the bottom of the Great Recession.
I don't think the situation MeracdoLibre is facing now is nearly as dire as what the financial crisis unleashed in 2008. Should the stock recover to even eight times sales -- which is still low compared to where it spent most of the last decade trading -- that would represent 66% upside. MercadoLibre is an incredible value right now -- investors should be taking advantage of this e-commerce powerhouse.
Bear markets can be scary, but they can also represent great buying opportunities. The key is to find high-quality businesses that have been thrown out with all of the other stocks. Shopify, Twilio, and MercadoLibre are great examples, but there are many more out there trading at a significant discount.