For anyone desperate to find concerning data and indicators for near-term stock market performance, there's no shortage of worry points to choose from. Lately, investors have been forced to weigh the prospect that the economy will see a significant downturn this year and the possibility that inflation hasn't been tamed enough for the Federal Reserve to pivot away from raising interest rates.
The combination of unfavorable macroeconomic conditions and uncertainty on the horizon have created an unfavorable backdrop for stocks with growth-dependent valuations. But the upside of this dynamic is that there are now great companies trading at levels that leave room for fantastic long-term gains. If you're on the hunt for great growth companies trading at a lower price, read on for a look at two stocks trading at worthwhile discounts.
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Airbnb has become a cash-generating machine
Keith Noonan: After a brutal stretch of trading in 2022, Airbnb (ABNB -0.50%) stock has recovered somewhat and climbed roughly 28% this year -- but the market still isn't giving the company enough credit. The rental specialist has continued to post fantastic business performance, and its proven record of operational flexibility and strong margins points to fantastic opportunity with the stock at today's prices.
Airbnb managed to grow revenue 40% last year to hit $8.4 billion. Even more impressively, it managed to deliver robust sales-growth momentum while posting excellent margins. With free cash flow (FCF) of approximately $3.4 billion in 2022, the business closed out the year with an FCF margin of 40.5%. With free cash flow growing 49% in the period, its FCF increase actually significantly outpaced revenue expansion. Like many businesses, the company foresees some pressures on growth this year stemming from weaker macroeconomic conditions, but Airbnb has proven it can scale very efficiently.
With guidance for revenue to come in between $1.75 billion and $1.82 billion in the first quarter this year, the company's midpoint target calls for growth of roughly 18.5% year over year. Even with a less favorable macroeconomic backdrop, it's reasonable to anticipate that the business will deliver another year of solid FCF growth, and the stock is trading at levels that leave room for long-term investors to see fantastic returns.
Airbnb currently has a market capitalization of roughly $69 billion, which means that it's valued at less than 20.5 times last year's FCF. Given that the company has a leading position in its corner of the property rentals space and a long runway for continued sales and earnings expansion, shares look far too cheap right now. Down roughly 49% from its high, Airbnb stands out as a great buy for growth-oriented investors.
Pinterest has a massive long-term opportunity
Parkev Tatevosian: The last couple of years have been challenging for Pinterest (PINS -1.52%). That said, Pinterest's stock price, down 68% off its high, might be overreacting to the downside. Its long-run potential remains intact as it gains market share in an estimated $856 billion total addressable market. The image-based social media app boasts 450 million monthly active users and has grown revenue explosively for several years.
As of its most recent quarter, which ended on Dec. 31, 2022, Pinterest boasted 450 million monthly active users. That was up by 19 million from the same quarter in the prior year.
Why is time important to investors? Pinterest's website and app are free to use. It makes money by showing advertisements to folks browsing the platform. Of course, marketers are willing to pay more for the potential to influence the purchasing decisions of more people.
That could partly explain why Pinterest's revenue has soared from $473 million in 2017 to $2.8 billion in 2022. Still, Pinterest's latest year of sales pales in comparison to the size of the overall ad industry. If Pinterest can continue attracting users, getting them to interact with the app more often can potentially capture a greater share of the massive market.
PINS PE Ratio (Forward 1y) data by YCharts
Moreover, the significant price drop mentioned earlier gives investors an opportunity to buy Pinterest stock at a discount. Trading at a forward price to earnings of 26, Pinterest's stock has scarcely been cheaper since January of 2022, according to this metric.
Airbnb and Pinterest are great growth plays
While it's impossible to predict exactly what twists and turns the broader market might take in the near term, making long-term investments in strong companies remains a winning strategy. Even strong companies have seen big sell-offs in the face of today's macroeconomic pressures, but investors can actually capitalize on cases in which the baby has been thrown out with the bathwater. For investors seeking strong growth stocks trading at attractive prices, Airbnb and Pinterest stand out as great buys right now.
