As the calendar flips to 2023, some of the stocks that had an atrocious 2022 are worth a look. I'm not talking about businesses that suffered last year; I'm talking about stocks sold off despite the company succeeding.
Among the businesses fitting this description are CrowdStrike (CRWD 2.30%), Airbnb (ABNB 1.03%), and Palantir (PLTR 2.44%). Keep reading to discover why now is an opportune time to pick up these stocks.
1. CrowdStrike
Regardless of what happens with the economy, cybersecurity is one area businesses can't afford to skimp on. G2 named CrowdStrike a leader in 16 categories in this space. What sets CrowdStrike apart from its competitors is its artificial intelligence-powered platform, which uses trillions of data points collected weekly to improve its protection.
Two things caused CrowdStrike to slide in 2022: valuation and customer growth. CrowdStrike entered the year trading at more than 100 times free cash flow and 35 times sales. A premium valuation like that can't last; now, CrowdStrike's valuation sits at about 37 times free cash flow and 11 times sales. While this isn't cheap, it is a reasonable valuation for a company growing as fast as CrowdStrike.
In its FY 2023 third quarter (ending October 31), CrowdStrike's revenue rose 53% to $581 million, and free cash flow was up 41% to $174 million. With these growth rates, CrowdStrike will become a cheap stock by the end of 2023.
However, some investors are worried about new customer growth after CrowdStrike discussed the growing difficulty in signing new clients on its earnings call. Because CrowdStrike uses a land-and-expand model, existing customers are responsible for much of the revenue growth, so this isn't as big of a deal as some believe.
CrowdStrike is primed for an excellent recovery in 2023, and investors should take notice.
2. Airbnb
Airbnb's business had an incredible year, capitalizing on the 2022 reopening. In 2023, that catalyst will disappear, but Airbnb's business should remain. The company has seen demand remain strong and cross-border traffic return. Additionally, new hosts are coming to the platform, so the supply of rentals is increasing.
All of this bodes well for a company that grew revenue by 29% in Q3 to $2.9 billion and generated $3.3 billion in free cash flow over the past 12 months. That values Airbnb at a dirt-cheap 17 times free cash flow. Airbnb could even see its business slip at that price and still be fairly valued.
One issue to remain aware of is a growing trend in cities attempting to ban Airbnb rentals to free up the housing supply. New York City wants to ban any Airbnb the host doesn't reside in, effectively eliminating about 10,000 listings in New York City.
However, the investment opportunity is too great to ignore with Airbnb, as there are countless destinations for travelers besides New York City.
3. Palantir
Palantir's artificial intelligence-powered data analysis software was initially developed for various government agencies. Now it's expanding into the commercial arena to drive further growth. In Q3, Palantir's customer count rose 66% to 337. Why the low count? The price of Palantir's software.
On Amazon Web Services Marketplace, a monthly Palantir subscription costs $1 million. That severely limits Palantir's potential customer base. Still, Palantir's revenue rose 22% in Q3 to $478 million.
Large customers like Tyson Foods (which has used Palantir's software to create more than $200 million in cost savings) are Palantir's primary targets. Still, there are enough businesses around to make this a viable business model.
At about 7.1 times sales, Palantir is priced relatively low for a software company. This valuation likely comes from its unprofitability, as Palantir lost $124 million in Q3 -- a 26% loss margin.
However, Palantir is early in its life as a company. If it continues to improve its margins (which it has), it's on the right track. With the company projected to grow revenue by 21% and generate a profit next year, according to Wall Street analysts, 2023 could be a turnaround year for Palantir.
