In the wake of the market's 2022 sell-off, many companies have reached valuations that interest me. However, these aren't stocks I'm interested in buying to make a quick buck. Instead, these are businesses I'd be excited to be a long-term shareholder of.
Three stocks that would be great places to put some money to work are Airbnb (ABNB 2.30%), Veeva Systems (VEEV 1.74%), and PubMatic (PUBM 3.97%). Their valuations have reached multiyear lows, offering investors a great entry point right now.
Airbnb
Travel has forever changed with Airbnb's revolution. Instead of staying at hotels, consumers can now choose to stay at properties owned by Airbnb's millions of hosts. Booking this type of stay allows many consumers to travel at a lower cost than a traditional hotel or have a more unique travel experience.
Although the business faced pandemic-related headwinds in 2020 and 2021, the company emerged stronger in 2022. In the second quarter, Airbnb's nights and experiences booked rose 24% compared to the same quarter of 2019, while revenue was up 73% over the same period. Revenue was also up 58% year over year as the company posted its largest profit ever at $379 million, with an 18% net margin.
The third quarter is looking just as good with management projecting bookings growth to come in at a similar pace to last quarter. And revenue guidance of $2.78 billion to $2.88 billion indicates this could be company's biggest quarter ever.
Right now, Airbnb stock trades at about 9.1 times sales, which isn't cheap, but with the bottom line trending upwards, shares trade at a more reasonable 34.5 times forward earnings estimates. That premium is deserved given the company's strong growth and rising profitability.
If the economy weakens, investors will need to see how that affects Airbnb's business. Unfortunately, because it's a relatively young company, there is no precedent regarding how Airbnb might do in a non-COVID related recession, so it could be new waters for investors and management.
Still, Airbnb has become synonymous with travel, and with its expansion into new areas like experiences, this company has a long way to run.
Veeva Systems
The life sciences industry has unique requirements that others don't. First and foremost, patient confidentiality is critical. Second, data must be maintained for patient records and reporting outcomes of medical studies. Veeva Systems specializes in serving this unique industry with its Vault (records retention) and CRM (customer relationship management) products. By storing all of this data in the cloud, the company eliminates loads of paperwork that used to plague the medical industry and allows for easier data access.
Veeva's business is in a transition stage. It is no longer a rapidly growing business; instead, it's steadily expanding while attempting to stabilize its profitability. In its fiscal second quarter (which ended July 31), revenue increased 17% year over year while net income fell 17%. Its margins shrank across the board, continuing a trend that investors need to keep an eye on.
Data by YCharts. Note: profit margin = net margin.
Trading at 13.2 times sales, Veeva is also pricey, but the last time its valuation was this low was in 2018. Its forward price-to-earnings (P/E) ratio of 34.2 is near the lowest it has been since 2015, reinforcing the idea of its relative value.
Veeva is still working on stabilizing its profitability, but its stock could still take off long term thanks to its high-margin potential.
PubMatic
In tough economic times, advertising companies are known to struggle. Reducing ad budgets is an easy way for companies to save on expenses, and stocks associated with the industry often get dinged as a consequence. That's exactly what has happened with PubMatic, but it hasn't struggled nearly as severely as other ad-focused companies.
Because PubMatic is in the ad-tech space, it's more isolated from economic headwinds. PubMatic works on the sell side of ad transactions, helping companies with space for ads (like websites and streaming services) open their inventory to potential buyers.
PubMatic had an excellent second quarter with revenue growing 27% year over year to $63.0 million while producing $7.8 million in net income (12.4% margin). Analysts project PubMatic's sales will grow another 19% in 2023.
Given its solid growth and profitability, you might expect the stock to also be trading at a premium, but you'd be wrong -- PubMatic trades for a mere 14.4 times forward earnings. That's a discount to the S&P 500's P/E of 17.5.
It's unlikely the average company in the index will grow faster than PubMatic, so its stock is a steal at this price. The platform is also early in its lifecycle while still holding strong in the face of advertising industry headwinds.
This trio of stocks would be great choices to deploy cash you might have sitting on the sidelines. However, the market could still move lower from here just as easily as it could rebound. With that in mind, it would be wise to deploy cash slowly and at set time intervals to avoid letting emotion creep into your investment decisions. The most important thing is to keep buying.
