The technology industry has borne the brunt of the market downturn. Many of the more prominent growth stocks have lost more than three-fourths of their value as negative sentiment weighs on the market.
However, amid the pessimism, many companies continue to deliver positive returns for investors. As the negativity abates, it could foster a comeback in growth tech stocks, and companies such as Roper Technologies, Inc. (ROP -0.30%), Monday.com (MNDY 1.33%), and PayPal Holdings (PYPL 0.64%) have positioned themselves for such a recovery.
A steady software name in a turbulent market
Jake Lerch (Roper Technologies): There are plenty of beaten-down software stocks out there. And I've highlighted ones like Salesforce, Workday, and Snowflake as long-term buy-and-hold opportunities. However, I decided to go "against the grain" for my pick this week. Instead of choosing a former high flyer that's fallen out of favor, I picked a defensive stock within the software industry. Roper has outperformed its sector average and sports a price-to-earnings (P/E) ratio of only 14.
Roper isn't your typical software company. Founded in 1981, it began as an industrial services company. But timely acquisitions and overall trends in the industrial sector mean that over 65% of Roper's revenue now comes from software. Its products fill niches in many different non-cyclical markets. It provides truckers and food distributors with cloud-based supply chain software; the oil and gas industry relies on its temperature control and emergency shutoff valves. Roper even sells automatic meter-reading technology to water utilities.
With its niche markets and diverse customer base, Roper faces little in the way of competition, granting it pricing power. Its operating margins are a solid 27.4%. Revenue over the last 12 months was $5.93 billion, with earnings before interest, taxes, depreciation, and amortization (EBITDA) of $2.26 billion.
Since it is a stable, if not a particularly exciting business, Roper has fared better than many software stocks over the last year; it's down only 17% over the last year and 22% year to date. That's impressive relative performance compared to many software names that have shed 70% or more of their value. What's more, Roper even pays a small dividend (0.68% yield). So, if you're looking for a steady name in the software space, Roper Technologies might be for you.
This enterprise business is going strong
Justin Pope (Monday.com): A declining share price might have investors panicking, but enterprise software company Monday.com is humming along just fine. It refers to itself as a work operating system; its cloud-based software gives companies low-code and no-code tools to build customized work management applications.
Whether it's managing customer relationships, projects, marketing, or internal development, Monday.com's product can be built specifically to a company's needs and easily shared across departments within a company. More than 152,000 customers use Monday.com, which makes money with its software-as-a-service (SaaS) subscription model.
The product is mission-critical to its customers; the software becomes more ingrained in a company as more people use it. Customers spending $50,000 or more annually grew 187% year over year in the first quarter of 2022, while total revenue for the quarter was $108 million, an 84% increase over the prior year. This growth is excellent, but what happens in a bear market?
Downturns can spell trouble for growing companies. Debt can carry high interest rates, and issuing new shares of stock at low prices can dilute shareholders, making the existing shares less valuable. Strong financials to endure tough times is the best safety net a growing business can have.
Look to this old "friend" in the mobile payments arena
Will Healy (PayPal): At first glance, PayPal may look like another one-time high flyer that has been anything but a pal to investors. It has lost more than 70% of its value versus year-ago levels as fears over rising inflation and falling profits soured investors on this company. The transition of former parent eBay away from PayPal has further affected revenues.
However, the majority of its revenue still comes from making transactions. This segment derives revenue by charging a percentage of the total transaction value. Such an approach serves as an inflation hedge as revenue tends to rise along with prices. CEO Dan Schulman stated on the Q1 2022 earnings call that 60% of consumers choose PayPal as their favorite digital wallet, a factor that should bolster its ecosystem.
Admittedly, PayPal continues to deal with uncertainties. In the first quarter of 2022, revenue rose to $6.5 billion, 7% higher than year-ago levels. This is lower than the 17% growth in 2021.
Also, Q1's net income of $509 million fell 54% versus 12 months ago. This was due to a 12% increase in operating expenses. Additionally, income tax expenses came in at $120 million versus a $225 million credit in the year-ago quarter.
Nonetheless, the company forecasts revenue growth of between 11% and 13% for 2022, indicating a recovery in growth. Also, a drop in the stock price has taken its P/E ratio to 24, near record lows.
Indeed, rising inflation and overall market pessimism may weigh on PayPal in the near term. But these trends will not stop the shift away from cash, arguably making PayPal a fintech stock to buy right now.
