It hasn't been smooth sailing for most stocks in 2022, and it has been especially rough for growth stocks. The Nasdaq Composite index is down more than 25% year to date, and many individual stocks are down even further.
Some companies' share prices have fallen because of business weakness, but others have slumped more due to traders throwing the baby out with the bath water. Many stocks are down significantly this year even as their underlying businesses have continued to improve, and those stocks might be worth buying while they are still low. Among them, The Trade Desk (TTD -0.54%) and Adyen (ADYE.Y -15.43%) are growth stocks you might not want to let slip away from you right now.
The case for The Trade Desk
Shares of the buy-side advertising technology platform have dropped by more than 33% year to date, and a lot of that was because of the concerning macroeconomic environment. With a recession apparently on the horizon and inflation still high, many companies are pulling back on ad spending. Considering The Trade Desk provides a platform that facilitates ad transactions, a lack of demand from advertisers would (in theory) hurt The Trade Desk.
This isn't what the company saw, however. Its revenue rose 35% year over year to $377 million in Q2, and it increased its market share in the first half of 2022.
How did The Trade Desk thrive while other ad businesses struggled? Companies likely cut their advertising spending, but they didn't do so across the board. The advertising platforms that The Trade Desk connects businesses with provide a high return on their investment, and even when advertisers have to tighten their budgets, they will keep patronizing the platforms that deliver the best results.
This is partly why The Trade Desk is the leading independent buy-side platform, and it will likely help the company capitalize on the massive opportunities ahead. The company believes $750 billion is spent on global advertising annually, and considering The Trade Desk facilitated only $6.2 billion in volume in 2021, there's plenty of room for it to run.
The company trades at 63 times free cash flow, and while that is expensive in absolute terms, The Trade Desk has never been a "cheap stock." In fact, its current valuation multiple is closer to its five-year low than its five-year average. With that in mind, investors might want to scoop up shares before they revert to the mean.
The case for Adyen
Adyen is in a similar boat: Shares of the payment processing company are down 44% year to date even though it has posted impressive financial results. The company provides digital payment processing capabilities for some of the world's largest businesses, including Microsoft (NASDAQ: MSFT), McDonald's (NYSE: MCD), and Spotify (NYSE: SPOT). It takes a small fee for each payment it processes and settles -- which makes up the majority of total revenue -- so less activity for its customers due to macroeconomic headwinds results in less revenue for Adyen.
Like The Trade Desk, however, Adyen's financials barely showed any signs of economic turmoil. Customers continued to rely heavily on Adyen's processing services, and it processed almost 346 billion euros in volume in the first half of 2022, up 60% year over year. Its revenue rose 37% to 608.5 million euros. What's especially impressive about Adyen, however, is its profitability. Even during that challenging period, the company boasted a net income margin of 46% and a free cash flow margin of 51%.
Importantly, Adyen is using this profitability to strengthen its long-term competitive position, working to continue gaining market share and attracting customers at a time when rivals might have to pull back on their investments due to constrained profits. Adyen is also in a position that would allow it to ramp up hiring and attract the best talent available, which could result in more innovations down the road. The company is already doing this: In the first half of 2022, Adyen hired 395 full-time employees.
Adyen looks like a buy today, not only because of its tremendous adoption but also because of its current valuation. Shares trade at just 19 times free cash flow -- far below the valuations of rivals like Block (NYSE: SQ) and even slightly below giants like PayPal (NASDAQ: PYPL). Everything seems to be going right for Adyen, so you might regret not buying this high-quality business on the dip.
