While the broader market is still in the red for the year, it has performed decently in the past three months with the S&P 500 rising by almost 8% in this period. Could this be the start of a new bull market? It's too early to tell. Many companies that have performed even better recently could end up falling again. But it's important to remember that it's virtually impossible to time the market and know precisely when it has (or will) bottom out.
Waiting for the perfect time to invest is a waste of time. Plenty of stocks look to be recovering, and whether or not the coming months will throw us more curveballs, what matters most is a company's long-term thesis. Let's examine two companies that have outperformed the market in the past three months but are still down substantially for the year: Guardant Health (GH 1.51%) and Adyen N.V. (ADYE.Y -1.41%). Are these two stocks worth buying?
1. Guardant Health
Guardant Health prides itself on improving the outcomes of cancer patients thanks to its liquid biopsy platform. The company's tests help qualified healthcare professionals predict the probability of recurrence in early-stage cancer patients or determine the best treatment options for those with late-stage cancer, all from a blood draw.
Further, pharmaceutical companies use some of Guardant Health's products to screen and select the ideal participants for oncology-related clinical trials. Liquid biopsies are typically faster and substantially less invasive than traditional tissue biopsies, advantages that matter to all parties involved, especially patients.
Despite these perks, Guardant Health is facing issues. One is the red ink on the bottom line, which is a big no-no for many investors in these challenging times. Another headwind impacting Guardant Health is slowing revenue growth.
GH Revenue (Quarterly YoY Growth) data by YCharts
Even so, liquid biopsies are rising, and the company is well-positioned to profit. According to some estimates, the market will be worth $26.2 billion by 2030, registering a compound annual growth rate (CAGR) of 14%.
Guardant Health reported total revenue of $205.2 million in the first half of the year, representing a year-over-year increase of 20.2%. The company's net loss came in at $352.7 million, worse than the net loss of $204.9 million reported during the year-ago period. Guardant Health's top line can continue growing at a good clip along with the rest of the liquid biopsy market, especially as it develops more products that meet dire needs.
One such product is Guardant Shield, a test to help physicians catch various cancers as early as possible. Doing so improves survival rates, which is why Guardant Shield could be successful. This test is already available in the U.S. for some patients eligible for colorectal cancer screening.
Guardant Shield is still being tested for its ability to detect other cancers early, and Guardant Health will expand its platform over time. The company may still succumb to near-term economic issues, but in the long run, revenue should keep growing as it makes headway into its market, and the company will eventually become profitable.
Despite recent stock market woes, this innovator could be an excellent long-term bet.
2. Adyen N.V.
Few customers think about the complex maze that allows credit card transactions to be quick. Payment gateways, risk management solutions, and transaction processing systems are some of the parts that enable the whole to run like a well-oiled machine.
Netherlands-based fintech specialist Adyen offers all three and combines them into a single integrated platform for its customers who, as a result, no longer have to deal with a fragmented mess of multiple providers -- which can differ from one geographical region to the next -- for each of these solutions.
The result is a more efficient payment solution system. Adyen's platform arguably benefits from high switching costs -- a potent competitive advantage -- since seeking to switch to one of the company's competitors could result in business disruptions. Investors appear to appreciate the benefits; Adyen shares trade at an expensive price-to-earnings ratio of 83, compared to the S&P 500's average of 23 as of the first quarter.
Growth stocks with rich valuation metrics have been hammered recently, but there are good reasons to be optimistic, too. First, Adyen continues to record solid financial results. The company's revenue in the first half of the year jumped by 37% year over year to 608.5 million Euros ($614.1 million). Processed volume climbed by 60% year over year to 345.8 billion Euros ($348.8 billion). Net income came in at 282.1 million Euros ($284.5 million), 38% higher than the year-ago period.
Second, the fintech industry is still in high-growth mode, which will likely continue thanks to the switch to e-commerce and the increased need for digital forms of payment. Businesses know they need an online presence these days to have a shot at success; companies like Adyen that offer payment solutions which accommodate both brick-and-mortar and online stores should continue to be in high demand.
Some analysts see the fintech industry climbing at a CAGR of 26.2% through 2030. Adyen isn't alone in this competitive market, but thanks to the usefulness of its services and the competitive edge it has built, it can grab just enough of this expanding industry to help it grow its revenue and profits -- along with its share price -- in the next decade and beyond.
