What happened
Shares of Fiverr International (FVRR -2.00%) rose 20.5% in January, according to data from S&P Global Market Intelligence. The operator of a leading marketplace for freelance services didn't unleash this move through some stunning product announcement or bullish analyst report. Instead, it was a welcome breather after many moons of falling stock prices. The global economy inspired both the negative trend and the sharp reversal.
So what
Let me take you back a couple of years. Fiverr was on top of the world in early 2021. Sales had nearly doubled year over year in October's third-quarter report, and free cash flows were doing the same.
Users flocked to Fiverr's services in the lockdown phase of the COVID-19 crisis, and they kept coming back even as coronavirus mitigation efforts started to lighten up. By Feb. 12, 2021, stock prices had surged 1,140% in 52 weeks.
But effective COVID-19 vaccines were widely available at this point, signaling the end of an era. Specifically, many Fiverr investors saw the stock as a bet on anti-coronavirus policies and were happy to cash in their gains when the tide started turning.
As a result, Fiverr's stock began a long and painful plunge, and it closed Friday's trading session 86.5% below the lofty peak of February 2021:
At the same time, Fiverr's business kept growing.
The company has been smashing analyst expectations left and right since the all-time high. Active buyers of freelancers' services stood at 4.2 million in the latest earnings report, up from 3.1 million two years earlier.
Average spend per buyer also rose by 34% over the same period, adding up to a 58% increase in quarterly revenue. In short, Fiverr's business is booming. This company wasn't a coronavirus-based gadfly after all, and some investors are waking up to this reality nowadays.
In particular, the rebounding trend becomes more obvious when the economy is doing better. On that front, January showed a tighter grip on the runaway inflation and an upcoming end to a long string of increased federal interest rates. Fiverr has direct exposure to that risk because its balance sheet carries more debt than cash. But the company also generates robust cash profits, which limits the effects of rising interest rates.
Now what
The net effect of those puts and takes was that investors saw a more reasonable risk in Fiverr's stock in January. It's not cheap by traditional metrics, changing hands at 56 times free cash flow and 4.6 times sales. Still, growth investors like yours truly see tremendous value in Fiverr's massive target market and rambunctious expansion.
In fact, this is one of my favorite stocks to buy right now. I'm happy to pay a premium price for a premium company, and Fiverr fits the bill. We're talking about a global leader in the gig economy, which is changing the way people think about work and careers. That's a big ambition but also, in my eyes, a nearly unstoppable one.
That's why I'm more than happy to pick up more Fiverr stock at very reasonable prices, before the economy gets back on its feet and the credit-risk discount goes away again.
