Even with equity markets recovering, many stocks have yet to bounce back from last year's downturn. So there are plenty of opportunities for investors to pick up quality stocks from the discount bin. Of course, not all stocks that are down will bounce back over the long run, so as always, it's essential to choose wisely.
With that said, let's consider two stocks that lagged the market over the past year and are worth holding onto for a while: PayPal (PYPL 2.90%) and Fiverr (FVRR 3.74%).
1. PayPal
PayPal struggled a bit over the past year and a half as its pandemic-related boom ended. The company's user and revenue growth decelerated compared to their 2020 levels, and it has also been on the wrong side of currency exchange rate dynamics that have taken a bite out of its top-line growth metrics. All these issues explain why PayPal hasn't performed very well on the stock market. But zooming out can help bring a bit of perspective.
PayPal reports that between 2017 and 2022, its active account, total payment volume (TPV), and revenue grew at compound annual growth rates of 14%, 24%, and 16%, respectively. Notably, PayPal's TPV already crossed the $1 trillion mark and stood at $1.36 billion as of the end of 2022. That's pretty impressive, and there is still plenty of upside left for the company. PayPal ended the second quarter with 431 million active accounts, an increase of 2 million year over year.
The company benefits from the network effect. The more customers join PayPal's digital payment ecosystem, the more it will become attractive to merchants, and vice versa. And that's not the only source of PayPal's competitive advantage. PayPal built a powerful brand name synonymous with what it does. The company's peer-to-peer payment platform, Venmo, has become a verb.
PayPal's name recognition will help it grow its active accounts and the number of merchants who carry it as a form of payment. That will lead to a higher TPV and revenue, especially as the economy rebounds. Over the long run, PayPal will profit from the increasing switch to digital methods of payments, with the company's competitive edge allowing it to remain a leader in the industry. Meanwhile, PayPal's forward price-to-earnings (P/E) and price-to-sales (P/S) declined significantly since early 2022.
PYPL PE Ratio (Forward) data by YCharts
In my view, the company remains one of the top fintech stocks to invest in and hold onto for five years or more, especially while its shares remain down.
2. Fiverr
Fiverr was also a bit of a "pandemic stock," with its shares and financial results initially rising and then falling as it started experiencing slower revenue growth. The company also paid the price for the persistent red ink on its bottom line. Investors tend to put their money into consistently profitable companies when the going gets rough, so last year's downturn was a horror show for Fiverr.
Although the company isn't recovering yet, there are reasons to be optimistic. First, Fiverr's business has a long runway for growth. The company connects freelancers with businesses looking for their services. Both sides of the equation benefit from Fiverr's platform. Companies can cut expenses by rapidly finding contractors on Fiverr, who can get work done without becoming employees -- that is, without being legally entitled to all sorts of benefits, such as paid time off.
Meanwhile, many freelancers enjoy the luxury of making their own schedules. Fiverr's platform is a quick way of advertising services and getting consistent work without building a website from scratch. Second, Fiverr's business also arguably has a network effect, with more freelancers attracting more companies. Third, Fiverr sees a massive addressable market ahead worth $247 billion.
The company's trailing 12-month revenue comes in at just $338.6 million, a tiny proportion of that total. Fiverr isn't the only company to try to profit from this opportunity, but it remains the top freelance brand according to a ranking put together by the consulting firm Ipsos. Lastly, Fiverr's forward P/S has also declined substantially over the past year and a half.
FVRR PS Ratio (Forward) data by YCharts
The company should reward those investors who get in now and hold its shares through the next five years.
