High-flying stocks got a reality check in 2022 as investors decided to dump richly valued companies amid rising interest rates, surging inflation, slowing growth, and fear of a recession. All of these factors that have sent the stock market into bear territory this year. But 2023 could turn out to be different, as the gloom is expected to be over in the new year.
Signs of cooling inflation, the Federal Reserve's potential pivot on interest rates, and a possibility of the U.S. avoiding a recession next year could trigger the next bull market. The S&P 500 has gained 12% since the beginning of October, suggesting that the stock market may have turned a corner. As such, investors should consider buying some beaten-down companies that are trading at relatively attractive levels and are clocking impressive growth before the next bull market begins. Tesla (TSLA 1.85%), Matterport (MTTR -4.17%), and Cloudflare (NET 3.77%) are three names investors should have on their radar today.
1. Tesla
Tesla stock has lost roughly 60% of its value in 2022 despite posting solid growth in recent quarters, but the company's slide isn't surprising given recent reports that demand for its electric vehicles (EVs) may be softening. Reports suggest that Tesla may be cutting production in China thanks to weak demand. The company missed revenue expectations in the third quarter of 2022, and there were concerns that surging inflation and global economic weakness are negatively impacting its vehicle deliveries.
Additionally, CEO Elon Musk's acquisition of Twitter is another factor that's reportedly weighing on Tesla's stock. However, investors should focus on the bigger picture, as Tesla is operating in a market that's built for long-term growth. Fortune Business Insights estimates that global EV sales could grow at an annual pace of 24% through 2028 and hit $1.3 trillion in annual revenue.
Tesla is already making the most of this opportunity, as its rapid growth indicates. The company's total revenue shot up 56% year over year in the third quarter to $21.5 billion. Consensus estimates suggest that Tesla could finish 2022 with $83 billion in revenue, an increase of 55% over the prior year. More importantly, Tesla is anticipated to sustain its remarkable revenue growth.
TSLA Revenue Estimates for Current Fiscal Year data by YCharts
Tesla has started deliveries of the Semi truck, and it is busy expanding its capacity at an aggressive pace. The company reported an installed annual vehicle capacity of nearly 2 million units at the end of Q3, which was nearly double the prior-year period's production capacity of just over 1 million units. So Tesla's growing production capacity, new products, and the secular growth of the EV market should help the stock step on the gas in the event of a bull market.
With Tesla now trading at 7.4 times sales, compared to its 2021 price-to-sales ratio of 25, savvy investors may want to capitalize on the stock's decline and buy it before it starts soaring.
2. Matterport
Matterport stock has taken a severe beating in 2022 -- dropping 85% year to date -- but don't be surprised to see a turnaround in the company's fortunes in 2023. That's because Matterport's top-line growth is set to accelerate thanks to the growing adoption of digital twins.
In the third quarter of 2022, Matterport's top line increased 37% year over year to $38 million, driven by solid growth in the company's subscription and services business. Management estimates a 48% year-over-year increase in revenue in the fourth quarter to $40 million at the midpoint. The company has been striking new partnerships with real estate and construction firms, which are choosing its digital twin platform to create three-dimensional (3D) versions of real-world objects and spaces.
Demand for digital twins is set to soar in the long run, and this could help Matterport sustain its impressive growth. More specifically, the digital twin market is expected to clock annual growth of 25% over the next decade and exceed $90 billion in annual revenue by 2032, a big jump from this year's estimate of $8 billion.
Matterport has already built a solid subscriber base that should help it tap this massive opportunity. The company had 657,000 subscribers at the end of the previous quarter, a big jump of 50% over the prior-year period. In all, Matterport should be on its way to clocking healthy growth in the long run.
Its bottom line is expected to grow at an annual pace of 26% over the next five years. With the stock trading at 6 times sales, compared to a whopping 46 times sales in 2021, now would be a good time to go long on Matterport. This is especially true since a bull market in 2023 could reward investors with a nice upside given the company's growth and its long-term prospects.
3. Cloudflare
Cloudflare is another fast-growing company that has borne the brunt of the stock market sell-off this year, shedding 59% of its value year to date. But the company's latest results and outlook suggest that investors looking for a growth stock should consider buying Cloudflare stock hand over fist. After all, it seems set to jump higher in the event of a bull market.
Cloudflare's total addressable market is expected to grow to $135 billion by 2024, and the company is just beginning to take advantage of this huge opportunity. It reported $254 million in revenue in the third quarter, an increase of 47% over the prior year. This was the first time Cloudflare hit $1 billion in annualized revenue.
The cloud platform provider -- whose offerings make internet connections faster, more secure, and more reliable -- is witnessing massive growth in its customer base, while also winning a bigger share of customers' wallets. This is evident from Cloudflare's dollar-based net retention rate of 124% last quarter. The metric compares the company's annualized revenue from paying customers in a quarter to the annualized revenue from the same customer cohort in the prior-year period.
A reading of more than 100% means that customers have either increased their usage of Cloudflare's solutions or are adopting additional offerings from the company. Not surprisingly, Cloudflare is expected to end 2022 with a 48% jump in revenue to $974 million. Analysts also project it to maintain that momentum in the coming years.
NET Revenue Estimates for Current Fiscal Year data by YCharts
All this makes Cloudflare a top growth stock to buy right now. However, investors should note that it is still trading at a rich 17 times sales.
