The Nasdaq Composite Index has advanced by more than 30% year-to-date. The businesses below outperformed these lofty figures in the first half of the year, rising between 55% and 98%.
However, Fortinet (FTNT 0.23%), DigitalOcean (DOCN 3.30%), and Global-e Online (GLBE 2.44%) have declined by 29%, 34%, and 18%, respectively, in the last month. Recently reported earnings didn't inspire their investors.
With the market previously pricing these three businesses for perfection, here's why their recent drops make them ideal stocks under $100 to buy and hold for decades.
1. Fortinet
For most investors, a leap of faith may be needed to invest in Fortinet and its complex networking and security operations. However, the company's track record (such as rising over 1,300% over the last decade) and promising intangibles make it too intriguing to ignore.
Operating squarely at the intersection of networking and security, Fortinet consolidates a litany of cybersecurity solutions onto one platform, simplifying and streamlining its customers' tech safety needs. Better yet, it is one of, if not the best, at what it does.
Technology research firms Gartner and Forrester named Fortinet a leader in the network firewall industry, highlighting the company's strong vision and offerings. Gartner also deemed the company a leader in software-defined wide area networking (SD-WAN) and a visionary in wired and wireless local area networking (LAN), which are focus areas for Fortinet.
Adding to these intangibles, the company is founder-led by Chief Executive Officer Ken Xie. Previously, Xie founded and sold an online security company, NetScreen Technologies, to Juniper Networks for $4 billion in 2004. This is noteworthy to investors as the Harvard Business Review highlighted that S&P 500 companies whose founders are still working with the company tripled the returns of their peers from 2001 to 2016.
Receiving a 95% approval rating from his employees, Xie's leadership and vision resonate throughout the business. This buy-in is further evidenced by a robust culture that landed in the 34th spot on Glassdoor's Best Places to Work in 2023.
While revenue growth slowed to 26% in its latest quarter -- with management guiding for just a 17% increase in the upcoming quarter -- Fortinet's return on invested capital (ROIC) of 132% is the second-highest in the S&P 500 Index. A stock's ROIC measures its profitability compared to its debt and equity. The higher the figure, the more likely the business is to outperform its peers over the long haul.
Despite analysts expecting 24% sales growth over the upcoming year, Fortinet only trades at 23 times free cash flow (FCF) -- its cheapest valuation since 2020. Ranked No. 1 in six critical security and networking capabilities by Gartner, Fortinet is well positioned to grow alongside a cybersecurity industry expected to see 10% growth annually through 2028.
2. DigitalOcean
Through its infrastructure-as-a-service (IaaS) and platform-as-a-service (PaaS) tools, DigitalOcean provides a simplified, pay-as-you-go cloud computing platform tailor-made for small and mid-sized businesses (SMBs). A stark contrast to the complex cloud offerings provided by behemoth peers Amazon, Alphabet, and Microsoft, DigitalOcean's live support and community-driven knowledge base make it the perfect launching pad for young companies utilizing the cloud.
Better yet, the company acquired managed cloud hosting provider Cloudways for $350 million in 2022, allowing DigitalOcean's customers to decide if they want to do things on their own (with DigitalOcean's help) or have things managed entirely by Cloudways.
Growing sales by 45% in the last quarter, Cloudways easily outpaced the company's overall sales growth of 27%, highlighting an appetite for these managed solutions. Despite this growth and breakeven generally accepted accounting principles (GAAP) profitability in the quarter, the market hammered the stock as sales growth decelerated for the third straight quarter.
With many companies continuing to rein in spending, optimization (a fancy way of saying "not increasing spending") has become an unfortunate buzzword for companies like DigitalOcean.
Due to these broader macroeconomic challenges, management expects sales to only grow by 13% in the upcoming quarter. However, it is essential to zoom out a bit for perspective, as the IaaS and PaaS industries are expected to grow by 26% through 2026, according to IDC.
With analysts forecasting 21% growth in the upcoming year, DigitalOcean's price-to-sales ratio of 5 is near all-time lows over fears of a continued slowdown. However, at this discounted price and with average revenue per user growing by 14% in the last quarter, any increase in customer count could reinvigorate growth for this sub-$100 stock.
3. Global-e Online
Founded in 2013, international e-commerce enabler Global-e Online went from non-existent to a $6 billion market capitalization in just a decade. Global-e's end-to-end platform solves many mundane intricacies of selling products worldwide, offering messaging in 30 languages, sales in over 100 currencies, and more than 150 payment options.
This doesn't even account for the shipping complexities, import duties, local taxes, customer service, and product returns the company's platform also helps sort out.
Despite more than tripling its revenue since its initial public offering (IPO) in 2021, Global-e's stock has only increased 44% in the same time frame.
Despite this high growth, two significant acquisitions, and a partnership with Shopify, Global-e's gross profit margin has steadily improved since its IPO.
GLBE Gross Profit Margin data by YCharts.
This is massively important for a company as young as Global-e as it demonstrates that its long-term strategy is intact. Best yet, Chief Financial Officer Ofer Koren believes this number could push 50% as the company matures.
With the company trading at 12 times sales, analysts' expectations for 49% growth in the upcoming year appear to be priced into the stock's lofty valuation. However, its game-changing integration with Shopify (which accounts for roughly 25% of online retail in the U.S.) is only one year old and leaves a massive growth runway for Global-e.
Looking ahead, market analytics firm Market Research Future expects cross-border e-commerce sales to 8x between 2021 and 2030, making Global-e's solutions and its stock an excellent investment to buy for under $100.
