The collapse of Silicon Valley Bank last week is adding fuel to investor fears and market pessimism. The news spooked the markets in general, and that was compounded by the fact that Silicon Valley was a leading tech industry bank. The S&P 500 has lost nearly all of its year-to-date gains.
However, companies that are in good fiscal shape, even growth-oriented tech companies, should be just fine. Any dips in price for these stocks can be looked at as a buying opportunity -- which leads me to my top growth stock right now: Global-e Online (GLBE 2.44%).
A niche e-commerce leader
Although e-commerce retailers have been experiencing pressure as they lap soaring growth from the beginning of the pandemic, there's no question that e-commerce has become a permanent shopping method for many people and will continue to grow for the foreseeable future.
Global-e provides cross-border solutions for e-commerce retailers, enabling global retailers to reach international audiences and generate higher revenue. It's the market leader in its niche, and it's a service that more and more retailers need to offer.
Since Global-e is easy to integrate into an e-commerce platform, and its value is felt even in a volatile economy, it has maintained high sales growth despite the environment. It closed out 2022 with a 69% sales increase over last year in the fourth quarter, and expanded its relationships with such high-profile clients as Walt Disney and LVMH. It also has a partnership with Shopify, which was an early investor in Global-e and offers it as an option to its thousands of merchant clients.
However, Global-e has been posting net losses as it scales. It was profitable before it came onto the public markets, but between expenses related to going public and two acquisitions last year, profits have tanked.
Is it safe to buy now?
There's risk inherent in investing in the stock market, and even more risk involved in buying stocks of companies that are young and unprofitable. The most risk-averse investors might want to stick to the tried-and-true blue-chip giants.
The most important thing to check in terms of determining if a company can stay solvent is its cash position. How much debt does it have, and is it short term or long term? Does it have enough cash, or cash-generation opportunities, to cover its debt over time?
For companies like Global-e that are in high-growth mode and have yet to post a profit as a public company, you want to see cash coming in and high sales growth. Global-e's free cash flow is consistently positive and skyrocketed in the fourth quarter, and it has no debt.
GLBE Free Cash Flow data by YCharts
Sales are rapidly increasing as well, which should lead to profits at scale.
GLBE Revenue (Annual) data by YCharts
The other factors that look favorable for Global-e's financial future are that it has already demonstrated the ability to be profitable, and that one large part of expenses related to its investment from Shopify will be fully amortized and off the expense list in 2025.
Shares are cheap now
Global-e stock has made a significant recovery this year. It's still down 10% over the past year, but it's up 25% in 2023. Even as the price is rising, the valuation is decreasing and looks attractive right now.
GLBE Price to Free Cash Flow data by YCharts
Since both sales and free cash flow have rapidly increased, the price is cheaper as the stock price rises. Global-e has a robust future ahead of it and is demonstrating financial health as it grows. It looks like a strong contender for a growth investing strategy.
