This year, the stock market might be on shaky ground, but that doesn't mean there aren't quality opportunities. In fact, if history is any guide, down markets are the best time to put money to work because markets have always broadly recovered in the long run.
But it's important to be selective about where you invest. Focusing on companies that are either profitable, or that have a strong balance sheet with a long runway to reach profitability, can reduce the risk of loss if market conditions deteriorate further.
Here's one stock that fits the latter part of that criteria, and it has the backing of analysts at one Wall Street bank who think it could more than double in price from where it trades today.
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Simplifying small business
Running a small business isn't easy, especially for sole proprietors who have to wear multiple hats -- operator, financial controller, and bookkeeper, to name just a few. Innovative fintech company Bill.com (BILL 3.21%) is on a mission to streamline some of those jobs to save business owners both time and money.
Bill.com's flagship platform uses cloud technology that makes it accessible from anywhere, and it's designed specifically to help manage the accounts payable process. Businesses often receive invoices from several of their suppliers, who each deliver them in a different way, but the Bill.com digital inbox allows the operator to aggregate them all in one place and then pay them with a single click. Plus, thanks to integrations with leading accounting software providers, the transaction is also logged in the books automatically.
About 146,600 businesses are now on board with the platform, but Bill.com is aggressively expanding into new verticals. It made two acquisitions in 2021 to cover more of the business payment ecosystem. The first was Divvy, a budgeting and expense management platform that allows operators to carefully track their costs. The second was Invoice2go, an accounts receivable platform that quickly and easily creates invoices for business owners to send to customers, and then also helps manage incoming payments.
In the fiscal third quarter of 2022 (Bill.com's fiscal year ends June 30), 221,400 businesses were using Invoice2go and 18,100 were on the Divvy platform. That means the acquisitions have more than doubled Bill.com's total customer base to over 386,000, and it's very quickly flowing through to the company's revenue expectations.
Powerful financial growth
Bill.com has steadily grown its revenue over the last few years, but it's set for a major acceleration in fiscal 2022 on account of its growing product and service offerings.
The company makes money in three ways. It takes a small fee from each payment facilitated through its platforms, which accounts for 68% of its revenue; and it also charges subscription fees for the use of its software, which makes up another 31% of its sales. Finally, 1% of its revenue comes from interest it earns on its customers' money that sits in escrow pending transaction clearance.
Profitability is one key financial metric Bill.com has yet to deliver. It lost $98 million in fiscal 2021 and it's on track to lose a further $35 million in fiscal 2022, according to its guidance. While that's normally unfavorable, the company has over $2.7 billion in cash and short-term investments on its balance sheet, meaning Bill.com could lose $100 million per year for the next 27 years before it runs out of money. That's a long runway.
And since the company has an extremely high non-GAAP gross profit margin of 84%, it has the flexibility to invest heavily in growth until it achieves scale, before dialing back operating costs to swing the bottom line into positive territory.
Why Bill.com stock could soar from here
Wall Street bank Wells Fargo has a $284 price target on Bill.com stock, which represents 122% upside from where it trades today. It's worth noting that amid the tech sell-off, Bill.com's stock price has collapsed by 63% from its all-time high of $348 to $127, so Wells Fargo's prediction resembles more of a recovery than barnstorming price growth.
The company does face some uncertainty for the remainder of this calendar year, and perhaps into 2023 because the Federal Reserve is currently increasing interest rates, which could slow down the economy. This could impact businesses and potentially shrink overall payment volume, where Bill.com makes most of its revenue.
But this is a long-term story. Bill.com thinks its global addressable opportunity could top $125 trillion in payment volume across 70 million business customers, so the company's results so far are a drop in the bucket by comparison. As the years go by, Wells Fargo's price target of $284 might eventually prove to be conservative.
