Most investors would probably like to forget about the last year in stocks. After all, despite the recent market upturn, many stocks are still well down from all-time highs set in 2021. The tech-heavy Nasdaq Composite index is down 29% over the past year. Growth stocks were hit especially hard during this bear market.
But it's OK. The strongest companies will rebound. After all, every past bear market has given way to a bull market in stocks. It's during steep sell-offs like the current one that savvy long-term investors often find excellent buying opportunities in high-growth stocks.
For those investors with $1,000 available to invest, there are several discounted growth stocks to choose from. These are companies that performed well during the pandemic but got ahead of themselves when pandemic headwinds eased. As businesses normalize and valuations return to more normal levels, three growth stocks that emerge as buys today are Shopify (SHOP +2.30%), Tradeweb Markets (TW 0.15%), and Block (SQ +2.44%).
NASDAQ: SHOP
Key Data Points
1. Small businesses continue turning to Shopify
Shopify helps small businesses run their operations, especially as it relates to their online stores. It provides the operating system for millions of businesses, giving business owners the tools to handle everything from payment processing to inventory management. The company thrived during the pandemic when people spent more time at home shopping online. In 2021, Shopify's two-year revenue growth was 192%, profits were a record $2.9 billion, and optimism around the business was never higher.
Believing that strong growth was just the beginning, its management poured millions into expanding. Revenue growth was solid last year at 20%, but expenses increased faster, up 69%. As a result, Shopify swung from a record profit to a $2.9 billion loss through three-quarters of 2022.
Its stock has taken a beating. From its peak in November 2021 to its bottom last October, the price plummeted by 87%. The stock is still down 74% and could be an excellent buying opportunity today. Shopify's price-to-sales ratio (P/S) peaked at 63.9 at one point during its rapid expansion, but it now trades at a more modest P/S of 11. This ratio is near the company's lowest since going public in 2015.
SHOP PS Ratio data by YCharts.
Shopify's roller coaster ride in the market doesn't change its underlying business. Shopify continues to be the e-commerce platform of choice for merchants. During Black Friday and Cyber Monday last November, it posted $7.5 billion in sales, up 19% from the previous year.
Shopify also looks to build on its top position by building out its Shopify Fulfillment Network (SFN). The SFN will simplify logistics for business owners, bringing together freight, distribution, and delivery. When it reaches scale, the SFN will allow for two-day delivery and help businesses on Shopify compete with Amazon. It expects to achieve scale in late 2023 or early 2024.
Shopify is in an excellent position to continue growing, and its discounted valuation makes this growth stock an appealing buy today.
2. Tradeweb is grabbing market share at an impressive rate
When the big players on Wall Street need an online trading platform, they turn to Tradeweb. Tradeweb began automating electronic trading markets back in 1996 when it first brought U.S. Treasury trading online. It has since expanded into several markets, including stocks, bonds, debt, money markets, exchange-traded funds, and derivatives.
NASDAQ: TW
Key Data Points
Tradeweb's impressive growth can be seen in the number of transactions made through its platform. Since 2015, the volume made through Tradeweb's platform has grown by 23% annually. This outpaces the growth in total volume in the markets it serves, which grew at 8% annually in the same period.
Its share of U.S. Treasuries traded has grown from 7.5% in 2016 to 19.6% last year, and it also takes a growing share of the corporate credit market and exchange-traded fund market. Part of its impressive growth is because of partnerships forged with the massive asset manager, BlackRock, and trading exchanges like Intercontinental Exchange and Cboe Global Markets.
Tradeweb stock trades at a pricey valuation, with a one-year forward price-to-earnings ratio (P/E) of 30.3. However, it garners a higher multiple because of its strong growth. Through the first three months of 2022, its revenue grew 12% while its diluted earnings per share (EPS) was up 23%.
The company benefited from strong trading volume across its different asset classes and products and should continue to benefit from tailwinds from active trading markets. Given its impressive growth and growing market share, Tradeweb is another excellent growth stock you can buy today.
NYSE: SQ
Key Data Points
3. Bitcoin brought Block stock down, but its other businesses are growing steadily
Block changed the game when it came to how businesses manage payment transactions. Through its Square product, business owners can easily take payments on orders. This product also allows business owners to take mobile orders and manage other aspects of their businesses, including customer insights, loyalty programs, and inventory management. In the third quarter, its gross profit from Square was $783 million, up 29% from the year before.
Its Cash App product, which allows customers to move money and carry out transactions, has also delivered strong results. In the third quarter, its gross profit from this was $774 million, up 51% from the year before.
What hurt Block the most in the last year was the drastic drop in Bitcoin and the decreased demand for cryptocurrency transactions. In 2021, Block made $10 billion in revenue from Bitcoin. Through three quarters of 2022, its Bitcoin revenue was just $2.8 billion. Through the first two quarters of the year, Block put up $412 million in net losses primarily due to Bitcoin's steep price drop. In the third quarter, its net loss shrunk to $15 million.
SQ PS Ratio data by YCharts.
Block stock is down 84% since peaking in August 2021. It trades at a P/S ratio of 2.5, far below its peak ratio. Given the lower valuation and continued growth from its Square and Cash App products, Block looks like another appealing beaten-down growth stock with a bright future, and now is an excellent time to add some shares.
