Many growth stocks have fallen sharply amid the Nasdaq Composite bear market, but some have been hit harder than others. Notably, Microsoft (MSFT 1.57%) and MercadoLibre (MELI 1.24%) have seen their share prices plummet 30% and 48%, respectively, marking the sharpest decline either stock has suffered in the past 10 years. But investors can put a positive spin on the drawdown by viewing it as a once-in-a-decade buying opportunity.
Here's why these growth stocks are worth buying today.
NASDAQ: MSFT
Key Data Points
Microsoft: The cornerstone of enterprise productivity
Microsoft is best known for its office productivity software. In fact, Microsoft 365 -- which includes applications like Word, PowerPoint, and Excel -- is the most popular enterprise application suite of any kind. But the company also has a strong presence in other software end markets. For instance, its Dynamics platform includes tools for business intelligence, low-code application development, and enterprise resource planning (ERP), and research company Gartner has recognized Microsoft as a leader in each category.
The tech giant has achieved similar success in cybersecurity. Products like Microsoft Entra for access management, Microsoft Sentinel for security information and event management, and Microsoft Defender for extended detection and response have all garnered high praise from industry analysts. Additionally, the company is steadily gaining ground in cloud computing. Microsoft Azure held a 21% market share in cloud infrastructure and platform services in the most recent quarter, up from 17% three years ago.
In a nutshell, Microsoft provides a wide variety of mission-critical software and cloud services to hundreds of thousands of businesses around the world, and that has led to consistently solid financial results, even when faced with a less-than-ideal economy. Despite battling economic headwinds, revenue climbed 15% to $203 billion over the past year, and free cash flow (FCF) rose 5% to $63 billion. And Microsoft is well positioned to maintain or even accelerate that top-line momentum in the coming years.
The ERP software, cybersecurity, and cloud computing markets are expected to grow at a double-digit pace through at least the end of the decade, at which point they will collectively total $2.2 trillion. Meanwhile, Microsoft has quietly become the seventh-largest digital advertising company in the world, and its exclusive partnership with Netflix could help it grab more market share in the future. That bodes well for Microsoft, as global digital ad spend is expected to increase by 9% annually over the same period, adding another $1.3 trillion to its addressable market.
In a nutshell, shareholders have good reason to believe Microsoft can grow revenue at a double-digit pace through the end of the decade, perhaps even as quickly as 15% to 20% annually. That makes its current valuation of 8.9 times sales look reasonable. That's why investors should consider purchasing a few shares of this growth stock today.
NASDAQ: MELI
Key Data Points
MercadoLibre: The e-commerce pioneer in Latin America
MercadoLibre operates the most-visited online marketplace in Latin America, and its mobile app was the 10th-most-downloaded shopping app worldwide in 2022, according to Apptopia. That popularity is due in part to its first-mover status. MercadoLibre launched its marketplace in 1999, just five years after Amazon went live in the U.S. But the company has also fortified its leadership position by providing adjacent services to merchants and consumers, strengthening the network effects inherent in its business model.
Most notably, Mercado Pago provides payment processing services to merchants, and it ranks as the third-most-popular digital wallet among Latin American consumers. Similarly, Mercado Credito offers merchants and consumers credit products, including loans and credit cards. Finally, MercadoLibre also provides shipping, fulfillment, and digital advertising services to merchants. All of those products are performing well. In the most recent quarter, payment volume increased 54%, credit volume soared 146%, and MercadoLibre handled 92% of shipped items, up from 86% in the previous year. That means merchants and consumers are becoming more dependent on its commerce and fintech platforms.
Not surprisingly, MercadoLibre reported strong financial results over the last year, in spite of economic headwinds. Revenue soared 54% to $9.7 billion, and the company generated positive free cash flow (FCF) of $1.6 billion versus negative FCF of $21 million in the prior year.
Looking ahead, shareholders have good reason to believe MercadoLibre can maintain that momentum. Latin America is the second-fastest-growing e-commerce market in the world, behind Southeast Asia, which also implies rapid growth in digital payments. And with shares trading at 5.7 times sales -- a bargain compared to the three-year average of 12.8 times sales -- this growth stock is a screaming buy.
