If there's a silver lining visible in the gloomy cloud-covered bear market this year, it's that several fast-growing technology stocks are trading at steep discounts to their all-time highs. For patient investors who are looking to deploy money with a time horizon of five years or more, that presents an opportunity that arguably hasn't been seen since the global financial crisis of 2008, or the dot-com crash in the early 2000s.
Still, it's important to be selective when picking individual stocks because not all declines are created equal -- some companies have a better chance of staging a recovery than others. A panel of three Motley Fool contributors thinks SentinelOne (S -1.72%), PubMatic (PUBM -2.27%), and The New York Times (NYT -0.11%) are great places to start. Here's why.
SentinelOne: Advanced cybersecurity at a 79% discount
Anthony Di Pizio (SentinelOne): A series of data breaches and cyberattacks over the last few years has the corporate sector scrambling to shore up its cybersecurity efforts. Bad actors not only deal financial blows to the companies they successfully hack, but often substantial reputational damage, too, which erodes customer trust. That's why organizations are seeking advanced tools from providers like SentinelOne, which relies heavily on artificial intelligence (AI) to protect its business customers.
SentinelOne's flagship Singularity XDR platform is the ultimate enterprise tool for protection at the endpoint, in the cloud, and against compromised identities. Its unique dashboard allows for visibility across an organization's entire security stack, which enables cross-department collaboration, fewer miscommunications, and faster response times. But thanks to AI, threats are often detected and neutralized without any human input at all.
For the reasons mentioned above, SentinelOne's financial results have been stellar this year. Companies simply aren't willing to compromise their spending on cybersecurity, and so the weak economic environment hasn't prevented SentinelOne from growing rapidly. In the recent third quarter (ended Oct. 31), the company's annual recurring revenue more than doubled to $487 million, as did the number of customers spending at least $100,000 per year, which came in at 827.
SentinelOne stock has declined by 79% from its all-time high primarily because the company is still prioritizing growth at the expense of profitability, which investors perceive as a high-risk strategy while the economy is weak. But here's why investors might be wrong: SentinelOne's net revenue retention rate currently sits at 134%, well above its 120% target, implying existing customers are spending 34% more money with the company each year. Put simply, acquiring new customers should be a top priority because of how much their value is increasing as time passes.
Not to mention, there isn't a single analyst tracked by The Wall Street Journal that recommends selling SentinelOne stock right now. A consensus like that is hard to ignore, and that's why the stock presents a great opportunity here.
A jaw-dropping deal is here
Jamie Louko (Pubmatic): The market has brought many bargains to long-term investors, but there are perhaps none better than Pubmatic. The company is one of the leading supply side platforms in the digital advertising space, helping publishers fill their available ad inventory.
Pubmatic shares have gotten hammered in 2022, falling 60% year to date. This makes sense, given the challenging macroeconomic situation weighing on businesses. When companies need to cut back budgets, advertising is one of the easiest places. Therefore, Pubmatic has been hurt. However, investors might have sold off this company too harshly: Pubmatic now trades below 17.5 times earnings, far lower than other advertising technology companies.
The activity Pubmatic has seen on its platform is expected to slow in Q4, but the company's profitability figures are still something to get excited about. While many small, fast-growing tech stocks are unprofitable, Pubmatic has remained profitable and cash generative, even during this uncertain macro environment. Over the trailing 12 months, the company has maintained a net income margin of 17% and a free-cash-flow margin of 19%.
This is expected to continue into Q4. Management is forecasting an adjusted EBITDA margin of 45%, which is actually a jump from the Q3 figure of 39%.
The company's adoption might slow in Q4, but that seems only temporary because the long-term future for this industry looks incredibly bright. By 2024, Pubmatic expects global digital advertising spending will reach $627 billion. Considering the company controlled roughly 3.5% of this space at the end of 2021, it could flourish over the long haul and see adoption pick back up in 2023 and beyond. With high profitability and a greenfield opportunity ahead, Pubmatic looks like one of the best deals on the market today.
One of the most renowned brands in media
Trevor Jennewine (The New York Times): The New York Times is one of the best-known global media brands. With 132 Pulitzer Prizes to its name -- more than any other news organization -- the company has earned a reputation for high-quality journalism. Of course, The New York Times is synonymous with news, but its portfolio also offers lifestyle subscription products for games, cooking, sports, and shopping reviews.
Many media companies have stumbled as print journalism has faded from popularity, but The New York Times has successfully pivoted to a digital-first business model. The majority of its revenue now comes from digital subscriptions and digital advertising, and its broad portfolio has laid the foundation for a compelling bundled product offering.
That strategy produced solid growth in the third quarter. Total subscribers climbed 27% to 9.3 million, and total subscriptions increased 28% to 10.8 million. In turn, quarterly revenue rose 8% to $548 million. On the bottom line, adjusted earnings dropped 9% to $0.21 per diluted share, primarily due to the recent acquisition of The Athletic, a sports journalism company. If that segment is stripped out, the remaining segment -- which includes news and lifestyle subscriptions -- reported 21% growth in adjusted operating profit.
However, sports journalism is a particularly exciting growth opportunity for The New York Times, as it adds a new dimension to the product portfolio. The Athletic currently has just 2.3 million subscribers, but a recent survey suggests that 24 million U.S. consumers would be willing to pay for sports journalism.
On that note, The New York Times puts its total addressable market at 135 million subscribers. That figure is more than 14-fold larger than its current subscriber base, meaning the company has plenty of room to grow. And right now is a good time for investors to buy a small position. The New York Times has seen its stock price tumble 40% this year, and shares currently trade at 2.6 times sales, a discount compared to the three-year average of 3.6 times sales.
