The market's doldrums of 2022 have turned into durable tailwinds. The S&P 500 index has gained 20% over the last year, and fears of a recession that never arrived have given way to an official bull market.
But not every long-term winner has gotten the bullish memo yet, so savvy investors should be keeping an eye out for potentially undervalued growth stocks. Right now, Fiverr International (FVRR 3.74%) and Airbnb (ABNB 0.75%) stand out as two of the best investment ideas in Wall Street's bargain bin.
Fiverr: A hidden gem in the gig economy's crown
Anders Bylund (Fiverr International): In the rapidly evolving gig economy, Fiverr International stands out for its resilience but also for its remarkable potential for long-term growth. Amid a bustling marketplace of freelance platforms, Fiverr's strategic position and innovative approach pave the way for its sustainable expansion, yet it also sports a valuation that might raise eyebrows for its modesty.
Fiverr's top line has increased by 86% over the past three years. Its free cash flow quintupled over the same span. However, Wall Street's market makers ignored these healthy business trends. Instead, Fiverr's recent stock price action has been inspired by its negative earnings and the deeply mistaken idea that the end of the COVID-19 pandemic would spell the end of the company's growth.
So long-term Fiverr shareholders have taken a 90% haircut in three years. These days, the shares change hands at the modest valuations of 3.4 times sales, 19 times free cash flows, and 14 times forward earnings estimates. Yes, the same Wall Street pros who brushed off Fiverr's cash-based success in recent years have changed their tune with downright bullish bottom-line estimates for 2024.
It's about time, too. I'm inspired by the company's relentless pursuit of innovation. From the launch of Fiverr Enterprise, designed to streamline corporate freelance engagements, to the introduction of AI-driven tools like the Fiverr Neo chatbot, the platform is continually being upgraded to meet the dynamic needs of its global user base. These advancements not only enhance user experience for both buyers and providers of freelance services, but also expand its market reach. Like any classic high-tech growth legend, Fiverr is laying the foundation for future revenue streams on a rich layer of research and development.
Fiverr's modest valuation, robust growth prospects, and strategic innovations add up to a compelling case for growth investors. In a changing world where flexibility and digital solutions are increasingly paramount, its blueprint for growth seems custom-built for the opportunities ahead. This gig economy crown jewel is shining brightly, even if mass-market investors haven't noticed yet. For those paying attention, Fiverr offers a golden opportunity to invest in the flexible future of work.
Airbnb stock still has huge long-term potential
Keith Noonan (Airbnb): Even though the broader market might not be in love with the stock right now, Airbnb has continued to grow its revenues at a solid double-digit percentage clip and record impressive margins. In the fourth quarter, sales increased 17% year over year to $2.2 billion. That performance pushed the company's full-year revenue to $9.9 billion -- up 18% from 2022. Meanwhile, the business closed out the year with free cash flow of $3.8 billion -- 39% of total sales for the period.
Despite serving up strong business results, Airbnb's share price actually slumped on the heels of its fourth-quarter earnings release. The travel specialist's share price is also still down roughly 32% from its high.
With a market capitalization of roughly $95 billion, the company is valued at roughly 25 times trailing free cash flow. While that's still a growth-dependent valuation, it's one that I think will come to look cheap with the passage of time.
The rental leader now has more than 5 million property hosts on its platform and 7.7 million property listings around the world, but the business still has plenty of room for expansion over the long term. Airbnb is making moves to drive adoption in countries where its business is still in its early stages. Management has also indicated that the company is gearing up to expand into new service categories.
It wouldn't be surprising to see the company begin to offer flight bookings, car rentals, or other travel-related offerings through its platform. If so, it's possible that Airbnb will be able to offer discounted bundle pricing that winds up being a big draw for users.
Crucially, Airbnb has fantastic brand strength, best-in-class technology resources, and a large global user base. These foundations should help the company bridge itself into new business verticals. With zero debt and $10.1 billion in cash and equivalents on the books at the end of last year, the business also has a great balance sheet to work with.
Airbnb's business is performing better and has greater opportunities than its stock price reflects -- and investors can take advantage of the disconnect.
