The current market sell-off has been brutal to wide selection of stocks, but it seems to have affected stocks in the Nasdaq Composite more than the broader market. Tech stocks have historically been listed on the Nasdaq, and they tend to have higher valuations due to the margin profile. These stocks also tend to get hit harder when the market crashes, causing the Nasdaq to drop alongside them.
Today we are going to look at three Nasdaq stocks that have been hit by the sell-off, but also have the real potential to triple in value over the next three to five years. They are Nvidia (NVDA 0.76%), dLocal (DLO -2.69%), and MercadoLibre (MELI -1.98%). Of course, the key here is holding long enough to see these holdings triple, but with the business outlook this trio has, that won't be difficult for investors.
1. Nvidia
Trading down 52% from its all-time high, Nvidia stock is down the least out of this trio. This $400 billion business designs and builds graphics processing units (GPUs) used in gaming computers, crypto mining, and data centers. While crypto saw a boom last year, this year has been terrible for nearly every cryptocurrency. This headwind may cause some sales pressure, but it is hard to quantify how much because some of the same GPUs used to power gaming computers are also used for mining cryptocurrency.
However, Nvidia's data center division recently passed its gaming segment (which includes the crypto miners) in terms of revenue during its fiscal year 2023 first quarter (ending May 1). The data center division saw sales growth of 83% year over year to $3.75 billion versus growth of 31% to $3.62 billion for gaming. Even with the current economic headwinds, Nvidia expects to see strong growth for data centers for the remainder of this year.
With more businesses adopting cloud computing and developing artificial intelligence (AI) capabilities, the demand for Nvidia's data center products will increase. This is a multi-year growth opportunity for Nvidia, and I believe it will drive the stock to triple in five years. That's massive growth, as Nvidia would grow from a $400 billion company into a $1.2 trillion company.
However, in 2021, Nvidia was already valued at over $800 billion. Additionally, if Nvidia maintains its current price-to-earnings (P/E) ratio of 42, the company would need to grow its earnings by 25% annually over five years in order to triple. For reference, Nvidia's non-GAAP earnings grew by 49% year over year this last quarter.
Nvidia may be a large company, but it has excellent potential to triple in the next five years due to the demand for its data center products.
2. dLocal
dLocal is a $7 billion company you've likely never heard of. It provides the payment technology necessary for large brands to operate in emerging markets like Egypt or Thailand. Companies utilize dLocal's software to enable the use of local payment methods, eliminating barriers to online shopping for many people. While this company may be relatively unknown, it is used by e-commerce giants like Amazon, Nike, and Shopify.
dLocal's growth numbers are also stellar. During its Q1, dLocal reported 117% year-over-year revenue growth and a 190% net retention rate, meaning existing customers spent $1.90 for every $1 they spent last year. Unlike some high-flying tech stocks, dLocal is profitable and posted a 30% GAAP profit margin for the quarter.
The stock is expensive at nearly 90 times earnings, but with dLocal growing as fast as it is, it deserves a high multiple. It also operates in multiple underserved markets, giving it a unique value proposition to e-commerce giants. dLocal's stock price is down more than 60% from its high, but with outstanding growth and a long way to go before fully deploying its product, it won't stay beaten down for long.
3. MercadoLibre
Like dLocal, MercadoLibre operates in emerging markets. Its offerings range from an online marketplace and digital payment solutions to two-day shipping. In short, MercadoLibre is laying the foundation for e-commerce in Latin America.
MercadoLibre has also experienced massive growth, with commerce net revenue rising 44% to $1.3 billion and fintech revenue growing at a 113% pace to $971 million during Q1. One knock against MercadoLibre is its lack of high profitability because it is focused on building out its offering before focusing on profits (a long-term move investors should cheer on).
However, when assessed from a price-to-sales standpoint, MercadoLibre's stock has never been this cheap (including during the depths of the Great Recession).
MELI PS Ratio data by YCharts
You can pick up a fast-growing e-commerce powerhouse for practically nothing. If MercadoLibre returns to its typical P/S ratio of 12, then the stock will triple based on that catalyst alone. Factor in MercadoLibre's overall revenue growth of 67% during Q1, and you've got stock with massive potential.
While the market is relentlessly selling off companies, it's leaving several fantastic investment opportunities behind. What you do during scary times as an investor will define portfolio performance over the long haul -- make the smart move and consider investing in this trio of companies today.
