The stock market is off to a positive start in 2023, with the Nasdaq-100 technology index trading higher by more than 6% so far. If this continues -- and history suggests it might -- this year could be the polar opposite of 2022, when the index declined by more than 33%.
But the recent gain in the Nasdaq-100 pales in comparison to the surge in shares of Axcelis Technologies (ACLS -0.47%) and Offerpad Solutions (OPAD -1.00%), which have jumped 28% and 57%, respectively, to start the year.
Interestingly, the two companies experienced very different journeys during the tech sell-off in 2022. Here are the unique reasons behind their juicy returns so far in 2023.
NASDAQ: ACLS
Key Data Points
1. Axcelis Technologies was a top-performing stock last year
Axcelis ended 2022 with a 5% gain, despite the steep losses in the Nasdaq-100. This semiconductor-service company provides ion implantation equipment to some of the largest chip manufacturers in the world. Chips are powering more of our everyday goods than ever, from our smartphones to our refrigerators to our cars, so the industry is constantly expanding its production capacity.
Since Axcelis' equipment is critical to the fabrication process, it has an incredible growth opportunity ahead while helping chipmakers meet demand. It's the main reason the company's stock outperformed the market last year. That's because, while much of the semiconductor sector was slowing down, Axcelis was experiencing record order volume. Its backlog climbed consistently throughout 2022 and reached an all-time high of $1.1 billion in the third quarter (ended Sept. 30).
The jump in Axcelis stock in 2023 is attributed to the company's announcement on Jan. 10 that it was increasing its revenue forecast for the fourth quarter of 2022 and the full year (ended Dec. 31). It now expects sales to come in at a record $900 million, which is $50 million above its original guidance issued 12 months ago.
But with much of Axcelis' order backlog set to carry into 2023, it could be set for another year of record annual sales. Plus, with its 2022 earnings per share estimated to come in at $5.20, its stock trades at a price-to-earnings multiple of just 19.3. So despite its 28% rally to start 2023, Axcelis stock is still cheaper than the Nasdaq-100, which trades at a multiple of 24.7. Axcelis stock would have to soar another 28% just to catch up, so investors can probably look forward to another great year.
NASDAQ: OPAD
Key Data Points
2. Offerpad is down, but not out
It's early days, but there's a buzz in the real estate sector this year. Inflation hit a 40-year high in June 2022, but it has steadily trended down in every month since, suggesting the worst of the U.S. Federal Reserve's interest rate hikes might be in the rearview mirror. Since housing is extremely sensitive to changes in interest rates, the more optimistic outlook boosted shares of Offerpad in a big way.
The company is an iBuying (direct buying) specialist, which means it purchases homes directly from willing sellers, renovates them, and attempts to flip them for a profit. It's a great business when real estate prices are going up, but with rising interest rates placing pressure on the market, it can result in catastrophic losses when home values head south.
Offerpad's business model is unique because it aims to flip houses within 100 days of purchase, which would normally insulate it from steep price declines. But the current market cycle is unlike any in the past because the Federal Reserve is increasing interest rates at the fastest pace in its history. That led to a steep $80 million net loss to Offerpad in the third quarter of 2022 (ended Sept. 30).
The company is now trying to trim its exposure. It sold 2,280 homes in Q3 but only purchased 1,847 more, shrinking its inventory by over $100 million on a sequential basis, to $1.18 billion. While this is a prudent move, it means Offerpad is destined to generate less revenue in coming quarters, and investors tend to shy away from companies that aren't growing.
Offerpad stock shows a 94% decline from its all-time high, so its 57% pop to start 2023 is merely a small first step on the road to recovery. Buying it here is a risky bet that the housing market will bounce back quickly. In reality, it could take a year (or more) for the effects of falling inflation to feed through to real estate prices. Therefore, it might be best for investors to wait on the sidelines for now.
