Inflation has been the story of 2022, hitting a 40-year high in the latest report. To combat it, interest rates are being driven higher as well, which increases the risk that the U.S. economy will fall into a recession. While it is still unclear which direction inflation is going at the moment, there are some early signs that the worst of it may be in the rearview mirror.
If that's the case, there's a reasonable probability that the broader stock market downturn in 2022 may be nearing a bottom and could resume its long-term upward trend. An environment where inflation is falling might also reawaken the heavily beaten-down technology sector.
High inflation might already be reversing -- rapidly
The key measure of inflation is the Consumer Price Index (CPI), which is released monthly by the U.S. Bureau of Labor Statistics (BLS). It's reported as a percentage that tells us how much the price of a basket of select goods and services has increased (or decreased) compared to the same period a year ago.
While it's very useful, it's a lagging indicator, which means the number reported each month often isn't the best measure of current prices. For example, the CPI basket of goods and services is determined by the consumer expenditure survey, which can be based on data that is two or three years old. In addition, with so much volatility in commodity markets over the last two years, big price swings can often take months to work their way into the CPI number.
On that note, the price of wheat has collapsed by 36% since March. This has a direct effect on the price of food, which is a major CPI input. Similarly, the price of natural gas is down 42% in just the last month. And used vehicle prices, which made up a large chunk of the inflation increase over the past year, have also begun to roll over. That's in addition to commodities like copper, iron ore, and lumber, which have fallen significantly from their all-time highs.
It could take several months for consumers to feel these price drops because local stores and suppliers need to work through their existing inventory. Therefore, they may not show up in CPI data until the end of 2022 (or even later).
If inflation truly has peaked, where should investors put their money? It might be time to start buying growth stocks again. Falling inflation would lead to a leveling off of interest rates, which adds fuel to the growth of rapidly expanding technology companies. Here's one to consider.
A leader in small business software
Exposure to America's small businesses might be a great way to play an environment with lower inflation and potentially lower interest rates, as they're on the front lines and could be the first to benefit. Bill.com (BILL 2.32%) is a technology company that provides accounting software to 386,100 small to mid-sized enterprises, and it has only scratched the surface of its total addressable market.
Bill.com's flagship platform offers businesses a digital inbox to manage their incoming invoices, which organizes an often messy paper trail. It operates in the cloud, so it's accessible from anywhere. Users can pay their invoices from the inbox with a single click, and transactions can be automatically logged in their choice of bookkeeping software.
While that only covers the payables side of the accounting ledger, the company aggressively expanded during 2021 through two key acquisitions. It now offers an accounts receivable solution through Invoice2go, which allows businesses to create and send invoices, in addition to managing incoming payments. Its other acquisition, Divvy, provides budgeting and expense management tools, rounding out Bill.com's service offering.
Bill.com earns 68% of its revenue through transaction fees, so it benefits when businesses are making a greater volume of payments using its platforms. If the economy slows down due to higher interest rates, this could negatively affect payment volume. When the economy is strong, the reverse is true, so if peak inflation has passed, then Bill.com stock is a great pick going forward.
Bill.com's growth is soaring
Bill.com's fiscal 2022 year ended on June 30, and when it reports its results in August, its previous guidance suggests it will have generated up to $625 million in revenue. That would be a whopping 162% jump compared to fiscal 2021, and it might just be getting warmed up.
The company estimates that its addressable market in the U.S. spans 32 million business customers, and up to 70 million worldwide. It could be fighting for a slice of $125 trillion in annual payment volume on the global stage.
Bill.com isn't a profitable company just yet. Its net loss was $98 million in fiscal 2021, and it could be around $36 million in fiscal 2022 once it reports its results. But the company has $2.7 billion in cash, equivalents, and short-term investments on its balance sheet, so it has a very long runway to generate profitability.
Besides, given its rapid revenue growth, it would be wise for Bill.com to continue investing in expanding the business because it's clearly finding success in doing so. When growth rates eventually temper to more sustainable levels, it can then focus on managing operating costs to deliver positive earnings for investors.
Bill.com stock is down 64% from its all-time high amid the broader tech sell-off, so now might be an opportune time to build a position at a discount, especially if the presently high inflation numbers do turn around.