Shares of SoFi Technologies (SOFI 3.69%), TransMedics Group (TMDX 3.17%), and Paycom Software (PAYC 1.24%) have sold off heavily in August despite the fact that each of these companies delivered impressive quarterly results. Their stock prices are now down by 12%, 32%, and 18%, respectively, over the last month.
While these stocks may have been priced for perfection, with optimistic outcomes baked into their values before their recent drops, each business's investment thesis remains brighter than ever. And divergences between a stock's short-term share price movements and the longer-term trajectory of the company's underlying operations can offer investors an opportunity to see tremendous value.
Here's what makes these three companies top growth stocks to consider right now -- particularly after their recent dips.
1. SoFi Technologies
After receiving its bank charter approval in early 2022, SoFi's banking aspirations hit the ground running. Using the company's technology platform segment as the foundation upon which its bank would be built, SoFi Bank's financial services aim to provide a perfect complementary offering to its lending unit.
Enticing prospective customers with savings accounts that pay 4.5% interest and checking accounts that pay multiples higher than nationwide averages, SoFi grew its member count by 44% to 6.2 million as of the end of the second quarter. More significantly, the company added $2.7 billion in deposits in its most recent quarter, bringing its total to $12.7 billion.
These rapidly growing deposits are vital to SoFi as they provide it with a cheaper funding source for its lending segment. Speaking at a KBW Fintech Payments Conference in early 2023, SoFi Chief Financial Officer Chris LaPointe explained that its (then) $7 billion in deposits would generate roughly $125 million in cost savings for the bank annually. Considering the company had $1.8 billion in revenue over the last year, savings of that magnitude will play a significant role in helping the whole organization reach profitability, which management forecasts will happen by the end of this year.
Best yet, 90% of SoFi's deposits come from customers who use direct deposit for their paychecks, meaning they should prove "sticky" -- an added positive after a year that saw several bank runs. On top of this, 98% of its account balances are also fully insured by the FDIC, adding another layer of protection.
The stock trades now at a price-to-sales ratio of 4.1. With SoFi's financial services segment growing by 223% year over year in Q2 and its banking unit already profitable, that valuation could be a bargain entry point for growth-focused investors.
2. TransMedics Group
As the operator of the only FDA-approved organ donation platform for livers, hearts, and lungs, TransMedics Group has its sights set on re-imagining the organ donation process.
Currently, donations rely on an antiquated process in which the organs are kept on ice between their removal from the donor and transplantation into a recipient. Though the cold preserves them, the organs are not receiving blood flow -- and therefore not receiving oxygen -- which means they cannot be optimized or tested for viability with the recipient. This -- among other issues -- causes most donated organs to go unused. Worse yet, even among those organs that are successfully donated, there is a higher frequency of severe post-transplant complications.
However, that process could soon be a thing of the past.
Using its patented Organ Care System (OCS), the company's portable, multi-organ perfusion (passage of blood) device keeps organs warm, oxygenated, and saturated with nutrient-enriched blood. Quite literally, TransMedics' OCS keeps donated lungs breathing, hearts beating, and livers creating bile -- leading to safer and more successful transplants.
The company's sales rose by 156% year over year in the second quarter and it nearly broke even on the bottom line. Speaking to these results, founder and Chief Executive Officer Waleed Hassanein explained that TransMedics' growth could have been even faster were it not for issues with logistical mobility regarding the movement of organs and organ recipients.
Interestingly, however, the company recently acquired U.S. charter flight operator Summit Aviation to improve its transplant logistics. Once that business is fully integrated, TransMedics hopes to have 24/7 service with dedicated pilots ready to fly to and from any of the company's 15 donation hubs.
The company trades at a lofty valuation of 13 times sales. But despite that premium, TransMedics' current market capitalization of $2 billion may be far too low given its incredible growth and its potential to revolutionize a multibillion-dollar industry.
3. Paycom Software
Thanks to the user-friendly design and mobile capabilities of its human capital management (HCM) software, Paycom has grown into a significant force within its niche. Paycom helps businesses with a range of tasks from talent acquisition and payroll to talent management, scheduling, and time and attendance, and its offerings are gaining acceptance. The company has averaged 26% sales growth annually over the last five years.
The company is even better at keeping its customers happy, with a Net Promoter Score (NPS) of 56. NPS (which is measured on a scale of -100 to 100) reflects how likely a company's customers would be to recommend its offerings to a friend -- the higher the number, the better. That score was the highest among its peer group in the HCM industry, showing that Paycom is in a solid position to retain its clients.
In addition to being the fastest grower in its peer group, Paycom sports one of the highest net income margins.
PAYC Revenue (Quarterly YoY Growth) data by YCharts.
This combination of high growth, strong profitability, and a beloved product creates an intriguing buying proposition for investors. And that's not all.
Founder and CEO Chad Richison said he believes that Paycom only has a 5% share of its total addressable market, leaving it an immense runway for growth. Furthermore, the company has started its expansion plans into Canada and is eyeing further moves on the global level over the next few years.
Trading at a forward price-to-earnings ratio of 37, Paycom cannot be considered "cheap." However, the fact that it managed to record growth (albeit minor) throughout the pandemic demonstrates the stickiness of the company's software and its long-term growth prospects.
Ultimately, in the wake of Paycom's 18% drop in the last month, buy-to-hold investors have an opportunity to pick up this founder-led disruptor at a discounted price.
