With the Nasdaq Composite still firmly in a bear market -- down around 26% over the past six months -- it is more critical than ever for investors to keep dollar-cost averaging into high-quality businesses at discounted prices.
While there are no sure things in stocks, the four companies we'll look at today have clear megatrends working in their favor and come with leadership positions in their niches. All trade below $100 and are down between 35% and 70% this year -- and indications point to a rebound over the long term.
1. PayPal
With Statista projecting global mobile wallet transaction volume to grow more than 60% by 2025, PayPal Holdings (PYPL -1.14%) looks primed to continue profiting from its growing base of 429 million active accounts. However, because of decelerating sales growth rates -- partially due to the ending of its partnership with eBay -- shares have plummeted more than 70% from their 52-week highs.
Recording first-quarter sales growth of 15%, not including eBay's sales from last year, and a free cash flow (FCF) decline of 32%, year over year, PayPal exhibited steady but mixed results. One bright spot in the report was the company's continued growth in active accounts and customer engagement, which respectively rose 9% and 11% for the year.
Image source: PayPal Q1 2022 earnings report.
PayPal's rapidly expanding value proposition to its users leads to this rising engagement across its growing customer base. Offering services such as Happy Return's reverse logistics, buy-now, pay-later options, crypto trading, and even shopping deals with Honey, this broad ecosystem has created strong customer loyalty that continues to shine through in these growth figures.
Guiding for free cash flow generation of greater than $5 billion in 2022, PayPal would trade at around 27 times FCF , even after accounting for $1.4 billion in stock-based compensation, making it a premium business trading at a fair price, below $100.
2. Unity Software
Creating and helping operate interactive, real-time 3D content, Unity Software (U -1.06%) is well-known for its leadership position in providing tools to game developers. However, investors should also take note of its rapidly developing business of creating digital twins (virtual representations of physical objects).
This secondary business line for Unity recorded 34 new deals in Q1 of 2022, each worth more than $100,000 in value -- a figure that grew 126% year over year. With market analysis firm Grand View Research expecting the global digital twin industry to grow by nearly 40% annually through 2030, this growth should just be getting started.
Thanks partly to this business line's growth, Unity reported year-over-year revenue growth of 36% for the first quarter but saw its net loss per share jump by more than 50%.
Despite the company's promising growth avenues, the widening loss and slowing sales growth have led to an 80% share price drop from all-time highs and its lowest price-to-sales (P/S) ratio since going public.
U PS Ratio data by YCharts
While this P/S ratio is still double that of the median technology stock in the S&P 500 index, Unity's deal with The Orlando Economic Partnership to build a digital twin for the 800-square-mile region may be a glimpse into the company's long-term optionality potential.
3. Roku
With TechCrunch projecting connected TV (CTV) advertising spending to double from 2020 by the end of 2022, it isn't shocking to hear that streaming TV juggernaut Netflix is planning to launch an ad-supported pricing tier shortly. Considering these intentions, the rumors circulating that Netflix is weighing an acquisition of Roku (ROKU 1.58%) and its advertising platform make sense in theory -- but it may be hard to pull off because of the latter's reasonably large market capitalization of $12 billion.
Further clouding this buyout possibility are Roku's advertising partnerships with AMC Networks and Paramount Global and its content distribution deals with YouTube and Disney -- all of whom are competitors with Netflix.
Posting 39% sales growth year over year for the first quarter of 2022 in its core platform segment, Roku showed that its trio of advertising operations, The Roku Channel, and content distribution on its operating system all look more vital than ever.
ROKU Revenue (TTM) data by YCharts
With returning advertisers increasing their spending by more than 50% year over year with Roku, look for the company to continue thriving amid the ongoing shift in advertising from linear TV to CTV.
4. Match Group
While Statista projects the online dating industry to grow by only 6% annually through 2026, Match Group's (MTCH -0.78%) leadership position and massive 30% free cash flow margins make it a no-brainer stock to buy under $100.
With its paying member count and revenue per payer rising 13% and 6%, respectively, in Q1 of 2022, Match Group's overall revenue jumped 20% over the same time.
Delivering promising growth since completing its spin-off from IAC/InterActiveCorp (IAC -2.18%) in 2020, Match Group hosts 16 million paying accounts and the world's most downloaded dating app, Tinder.
MTCH Revenue (TTM) data by YCharts
Highlighting its leadership position, 60% of American couples that met on a dating app did so on a Match Group brand. Thanks to this dominance in the online dating industry, the company looks very intriguing, trading at just 24 times free cash flow.
MTCH Price to Free Cash Flow data by YCharts
Any time a company's revenue growth rate nearly matches its price-to-FCF, it should catch investors' attention as it highlights growth at a fair price -- making Match Group's 20% growth at 24 times FCF attractive. Thanks to this favorable valuation and its global expansion potential, Match Group offers multibagger prospects over the long haul.
