This year, a harsh economic backdrop sent the Nasdaq Composite into a bear market, with the index down 30.6% from its high. Bear markets can be challenging for investors, but they're a normal part of functioning markets. Tech growth stocks, in particular, have been battered, with many down 70% or more and trading near their 52-week lows.
In situations like this, it's best for investors to not try to time the bottom of a bear market. Instead, use this time to research (and potentially invest in) companies you believe have real potential to deliver excellent long-term returns. Three companies with tremendous potential that are trading near 52-week lows are Block (SQ -1.68%), Marqeta (MQ -2.72%), and Shopify (SHOP -2.37%).
If you've got $5,000 that isn't needed to pay bills, bolster an emergency fund, or reduce short-term debt, you might want to consider using it to buy stock in any of these three discounted companies.
1. Block offers payment solutions for merchants and individuals
Block is a digital financial services company that changed the payments game for businesses and individuals. Through Square, it has created solutions that help sellers run their businesses. Its technologies facilitate mobile transactions and make it possible for companies to accept payments seamlessly while also allowing them to manage other aspects of their business.
Square also helps companies gain insights from customers and stay in touch with them through Square-managed loyalty programs or marketing campaigns. It also allows sellers to manage employee schedules and inventory, and take payments on the go -- combining several services under one business and making life easier for merchants.
Square's gross profit of $783 million in the third quarter was up 29% from the year before. It's also done an excellent job of expanding its reach outside the U.S. into Japan, Canada, and the U.K. In Q3, 15% of Square's gross profit came from outside the U.S., up from 9% one year ago.
Through its Cash App, Square provides an ecosystem for individuals to manage money. The app started as a way for people to send and receive money and has since expanded to allow customers to buy, sell, and store Bitcoin, make investments in stocks, and make payments to businesses. Cash App dominates the U.S. market, and its 34 million downloads are twice those of PayPal Holdings' PayPal app. In Q3, gross profit through the Cash App was $774 million, up 51% from last year.
Block benefited from the surge in customer interest in Bitcoin, which helped generate $10 billion of its revenue, or 57% of its total last year. However, this revenue fluctuates with customer demand which was tepid this year. Through nine months, its Bitcoin revenue has fallen $2.8 billion, or 34% from the same period last year -- weighing on the stock which is down 72% from its high point last year.
Its price-to-sales ratio (P/S) peaked around 15.5, but with the sharp sell-off, the P/S ratio is now 2.2 and near its lowest level since going public. On a positive note, its Bitcoin revenue fell just 3% in the third quarter while its other offerings enjoyed solid growth -- making this fintech an appealing buy at its current price.
2. Card-issuing platform Marqeta gives companies greater control over spending
Marqeta creates payment products for companies looking to take part in the world of digital payments. Companies turn to Marqeta because it can create payment products in a fraction of the time it takes legacy payment companies. For example, Block turned to Marqeta when it wanted to issue a virtual debit card alongside its Cash App, and Marqeta was able to turn around a product in six weeks.
Marqeta offers flexible payment products that give companies more control over spending and help reduce fraudulent payments. The flexibility of these products is a big reason companies like Goldman Sachs, Alphabet, Uber, and DoorDash have partnered with it.
Investors are cautious about Marqeta because of its heavy reliance on Block for revenue. Block accounted for 73% of Marqeta's total Q3 revenue. Having a single customer accounting for such a significant portion of its business is a considerable risk, especially if Block decides to turn elsewhere when its current agreement expires in 2024.
Earlier this year, Marqeta's founder and Chief Executive Officer, Jason Gardner, announced he'd be stepping down from his role, sending the stock down further. However, it may be a good thing. Gardner explained that the company's ready for its next growth phase, and he believes a new CEO can put it over the top.
Marqeta still put up solid growth in Q3, with its total processing volume, or the amount of payment volume through its products, up 54% year over year to $42.5 billion. It also launched Marqeta for Banking to expand its platform with banking capabilities and added new customers in the U.S. and Europe.
The fintech has work to do to diversify its revenue streams. However, it's on sound financial footing, with over $1.2 billion in cash on its balance sheet and no debt. With the stock price down 74% from its high and its P/S ratio of 5, it's the cheapest it's been since going public in 2021 and could be a solid buy for investors willing to withstand the volatility.
3. E-commerce giant Shopify overshot, but still has strong growth
Shopify provides tools needed to run an online store (as well as tools that help run the brick-and-mortar operations), handling everything from website hosting to payment processing and inventory management. The Canada-based business surged during the pandemic as lockdowns and travel restrictions pushed people toward online shopping more than ever before.
From 2019 to 2021, its revenue growth was an astounding 192%, and it went from a net loss of $125 million to a profit of $2.9 billion. Company management believed shopping had changed forever and that strong growth on its platform would continue, and it poured money into expanding. While revenue growth through three quarters this year is solid at 20%, expenses ballooned faster, up 69%. This has resulted in a $2.9 billion net loss this year.
Shopify President Harley Finkelstein admitted in the second quarter that "we overshot our prediction" and that "while the normalized rate of spend online ... has reset certainly higher than where it was in 2019, the rate is lower than we had planned for." The market has punished Shopify stock as a result. Its price is down nearly 79% from its peak price last year.
Shopify will look to wrangle its growing expenses while continuing to grow its e-commerce platform. The company laid off 10% of its workforce in July, and the compensation and severance packages are included in Q3 expenses.
The company invested heavily to become the e-commerce platform of choice for merchants. Shopify Payments is the company's payment processing solution that makes it easy for merchants to accept and process payment cards, eliminating the need to set up a third-party payment gateway. In Q3, its gross payments volume (GPV) grew 22% from last year, representing 54% of its total gross merchandise volume (GMV) -- giving it room to grow from here.
Last year, the stock traded at a lofty valuation, with a P/S ratio of 63.9 at one point. With a P/S ratio of 9.4, the stock looks attractive at near its cheapest valuation since going public.
