So far in 2023, the market spotlight has been on interest rates, recession possibility, artificial intelligence (AI), and the federal debt ceiling. The Federal Reserve has hiked rates at the fastest pace in 40 years, and inflation is dropping, although it's still well above the Fed's benchmark. The hikes threaten to send the resilient economy into recession.
On the other hand, it looks like the government has come to a debt-limit agreement, and AI enthusiasm has stocks like Nvidia (NVDA +1.31%) flying (up over 150% this year).
Amid the consternation and hype, companies like Airbnb (ABNB +2.75%) and Tecnoglass (TGLS 3.81%) are flying under the radar despite spectacular recent results. This means an opportunity for tenacious investors.
Let's examine the relatively unknown Tecnoglass first.
1. Tecnoglass: Excellent results meet secular growth
Tecnoglass is a leading fabricator and supplier of architectural glass and windows in the U.S. and Latin America. The company serves multiple markets like single-family and multi-family homes and commercial. Its products include customized windows for unique skyscrapers to hurricane-resistant and energy-efficient glass.
The company gets about 95% of its sales from the United States, which is a positive since the U.S. market is vast and growing. For example, studies show that the U.S. is short up to 6.5 million homes. You have probably noticed the rapid price rise due to the limited supply. This means that single- and multi-family construction has a long runway, and Tecnoglass should benefit.
Tecnoglass had a blowout year in 2022, reaching $717 million in sales and $226 million in operating income, as shown below.
Data source: Tecnoglass. Chart by author.
Sales have risen at a 44% CAGR, and operating income at a 85% CAGR since 2020. And despite current economic challenges, sales rose 51% year over year in Q1 2023 to $203 million. The company also has a backlog of $776 million, providing a nice cushion.
As depicted below, Tecnoglass stock has vastly outperformed the S&P 500 recently, but currently trades 17% off its 52-week high.
NYSE: TGLS
Key Data Points
It trades at a price-to-earnings (P/E) ratio of just over 10, significantly below its average of 14 since the beginning of 2021. This looks like a compelling entry point for long-term investors, although dollar-cost averaging is still a great idea. Tecnoglass is a relatively small public company with a market cap less than $2 billion, so it's most appropriate for patient investors who can handle moderate risk.
2. Airbnb: Results do the talking
Did you know that 2022 global travel and tourism revenue was still below pre-COVID levels? It reached $735 billion last year but hit $776 billion in 2019 before COVID-19 devastated earnings.
Airbnb's 2022 revenue, however, was 75% above its 2019 result ($8.4 billion versus $4.8 billion). This means that Airbnb posted these tremendous results despite an artificially depressed market, which bodes well for the future.
Travel is finally expected to eclipse 2019 levels this year and continue growing into the foreseeable future.
Airbnb's management excelled during the challenging last couple of years. The company was forced to downsize, and learned not only to make do with less but to thrive because of it. CEO Brian Chesky explained on the Q4 2022 earnings call that becoming a smaller company forced it to focus its best people on its biggest challenges. This made Airbnb focused and efficient, spurring the massive revenue growth mentioned above.
Perhaps the most impressive feat is Airbnb's profitability and cash flow. After years of unprofitable growth, the company posted its first GAAP profitable year in 2022 with $1.9 billion in net income on a 23% margin. Free cash flow rose to $3.4 billion on a 40% margin, and the company instituted its first share buyback program. The momentum continued in Q1 2023, with sales up 20% and free cash flow up 32% year over year.
Making hosting simpler and safer are two initiatives the company is undertaking to ensure growth can continue. AirCover, which provides additional protections for hosts and guests, was introduced in 2022, along with Airbnb setup, which connects new hosts with experienced hosts to guide them through the hosting process.
Initiatives like these are vital to ensuring enough availability to handle increasing demand, ultimately leading to more sales and profits for shareholders.
Despite the fantastic results, Airbnb stock trades 51% off its all-time high price and is down 24% in 2023. Its P/E and price-to-free-cash-flow ratios are near their lowest levels since the company went public in late 2020. The market seems to be pricing in a near-term recession but ignoring secular opportunity and rising earnings and cash flow. This presents an enticing entry point for long-term investors.
These two stocks have tremendous potential in growing industries, and, with top-notch results, belong on the radar of growth investors.
