The Nasdaq Composite index is up about 25% so far in 2023, but some fantastic companies within that index are still trading down big from previous highs. Two Motley Fool contributors have identified a pair of discounted stocks that they believe are set for big rebounds and incredible long-term performance. Read on to see why they think investors can win big by backing these two category-leading companies.
CrowdStrike: An industry leader poised for huge growth
Keith Noonan: Cybercriminals continue to target computers, mobile devices, and server hardware as weak points that can be used to breach networks. Therefore, having adequate protections in place is critical for a growing number of companies. Even with macroeconomic uncertainty causing many businesses to take a more cautious approach to spending, cybersecurity leader CrowdStrike (CRWD 2.03%) has managed to continue growing at an impressive pace.
CRWD Revenue (TTM) data by YCharts
Once customers begin using the company's Falcon platform, they tend to add more services over time. A dual growth engine driven by strong net revenue retention rates and new customer additions has helped the business expand its sales at a robust clip.
Revenue surged 37% year over year in the second quarter to reach $731.6 million, and subscription-based revenue rose 36% to hit $690 million. CrowdStrike closed out the quarter with annual recurring revenue of $2.93 billion, which was also up 37% year over year. With its heavily subscription-focused business model, the company is building a strong revenue foundation and posting impressive margins thanks to reduced sales and marketing costs.
Continued sales growth and margin improvements caused CrowdStrike's non-GAAP (adjusted) earnings to skyrocket 106% year over year to reach $0.74 per share in Q2. Crucially, it looks like CrowdStrike's earnings growth story is still in the early stages. In addition to a rising tide of cybersecurity threats spurring demand for the company's existing services, the software specialist also has new offerings in the works that will expand its addressable market.
With the stock trading still down 45% from its high, CrowdStrike is a great buy-and-hold play right now.
A growth stock that adds convenience to people's lives
Parkev Tatevosian: If you're in the market for a growth stock, PayPal (PYPL 2.90%) is a top recommendation. Its stock price trades down about 81% off its mid-2021 high in what is likely an overreaction by the stock market. PayPal attracted over 400 million active users by making shopping more convenient. Instead of typing in credit card information for every new website you shop, you can use your PayPal account to purchase across the many sites that accept it as a payment option.
That ease of use helped PayPal grow revenue from $8 billion in 2014 to $27.5 billion in 2023. Certainly, the rate of growth is slowing, and that's one reason why the stock price is down significantly, but the company is still demonstrating growth. As mentioned earlier, PayPal's revenue growth rate has decelerated from 21% in 2020 to 18% in 2021 to 9% in 2022. Part of the decline is due to people spending more time and money away from home. PayPal is primarily used when people shop online. The other likely explanation is rising competition.
PYPL PE Ratio (Forward 1y) data by YCharts
Still, PayPal's robust growth between 2014 and 2022 boosted operating income from $1.3 billion to $4 billion. Even if PayPal grows at pedestrian rates from here on out, the stock is a bargain. Trading at a forward price-to-earnings ratio of 10, PayPal's stock has arguably never been cheaper.
CrowdStrike and PayPal look like stellar long-term buys
CrowdStrike and PayPal stand at the top of their respective service categories, and each business is showing encouraging signs of momentum. Additionally, each company has a valuation profile that leaves room for long-term investors to see very strong returns. Trading down big from their highs, both stocks present attractive opportunities for long-term investors right now.
