Last year was absolutely brutal for growth stocks. Many lost 50%, some as much as 90%, of their value as high inflation and rising interest rates weighed on the economy. However, it seems things are changing. Some growth stocks have rebounded 10% to 50% since the start of 2023, reversing part of the losses from the last year.
Two growth stocks I believe are screaming buys right now are Airbnb (ABNB -0.23%) and Shopify (SHOP 0.21%). The stocks remain down 20% and 40%, respectively, over the past 12 months but are rallying quickly. Here's a closer look at each company and why these stocks are buys today.
Pessimism can't hold Airbnb down
The share price for vacation rental listing platform Airbnb was hammered in 2022 as investors became concerned that high inflation and a potential recession would slow travel spending. However, its earnings last year consistently proved the naysayers wrong. Not only has travel demand remained healthy, but the company reported absolutely incredible year-over-year growth.
Its revenues grew 43% since last year, while earnings before interest, taxes, depreciation, and amortization (EBITDA) doubled for the full year 2022. Airbnb saw a 31% increase in nightly bookings on its platform, which is helping it generate tons of free cash flow.
In its latest earnings, the company recently hinted at its ambitions to expand beyond its core services, although it provided no specifics on exactly what that could entail. But I still think there's a huge market opportunity for Airbnb to keep growing. More guests are looking for long-term rentals through the platform, with stays 28 days or longer making up roughly 21% of all bookings in the fourth quarter of 2022.
Despite being down 18%, Airbnb is still priced at somewhat of a premium. It currently trades at a price-to-earnings ratio (P/E) of 43, which is more than double the average P/E of the S&P 500. However, it's not unreasonable when compared to other high-growth stocks such as Tesla or Amazon. And considering how young the company is, I believe its price is fair when looking at its long-term growth opportunities. Shares have already rallied 45% since the start of the year. So if you're looking to lock in discounted pricing before this growth stock soars, now might be the time.
Shopify is facing some challenges, but it can still come out ahead
E-commerce platform Shopify is facing headwinds after the online shopping boom spurred by the global pandemic virtually disappeared. Since the economy reopened in mid-2021, e-commerce sales have slumped, leaving Shopify with massive operational losses. The company went from an operating income of $268 million in 2021 to an operating loss of $822 million last year.
Its gross margin also narrowed from 53.8% in 2021, to 49.2% in 2022, an indication that its expenses are rising while revenue recedes.
Bleeding cash like this isn't sustainable for a company, no matter how large its market share is as a percentage of gross merchandise value (GMV). But Shopify is tackling these issues head-on. It increased merchant fees at the start of 2023, cut 10% of its staff last year, and is taking measures to reduce expenses and spending. These moves should help the company improve its bottom line almost immediately, but that doesn't mean Shopify will be in the black again -- at least not in the next year or two.
The company's 2023 outlook predicts slight growth for its operating margin and revenue, but isn't as optimistic about profitability. Inflation and tightening budgets will likely keep many from shopping online, which clearly impacts its earnings. E-commerce sales as a percentage of all retail sales are still quite small, around 15% at the end of 2022. I believe the percentage of online sales will climb over the next five, 10, and 15 years.
Considering Shopify is one of the leading e-commerce platforms, processing over $197 billion of GMV in 2022, its growth should follow. The stock trades at just over $40 at the time of this writing -- a far cry from the $150 it traded at in December 2021. While there could be some pricing volatility in store for the stock this year, I believe over the long term it could rebound to its previous pricing. This would make it a great long-term growth stock to buy at today's low pricing.
