3 growth stocks that could rebound in the second half of 2022
The first half of 2022 is on the books, and for the stock market it was not pleasant. Both the wide S&P500 index and centered technology Nasdaq 100 fell more than 20% over the period, putting them in bearish territory. For many individual tech stocks, the results have been much worse.
But this could be an opportunity for the future, as there are early signs that high inflation is starting to ease, which could lead to less aggressive interest rate hikes. Three Motley Fool contributors think Bill.com (INVOICE -4.26%), Airbnb (ABNB -4.80%)and Okta (OKTA -4.39%) could make a comeback in the second half of 2022 after losing quite a bit of value at the start of the year.
A small business barometer
Anthony DiPizio (Bill.com): Small businesses are on the front lines of the economy. They are often the first to feel the pinch when conditions tighten and the first to enjoy it when consumption picks up. That’s why owning shares of Bill.com is a great way to take advantage of a potential economic rebound.
Bill.com is a provider of software tools that help small and medium-sized businesses manage accounts payable and accounts receivable flows. It derives most of its revenue from transaction fees when business-to-business payments are made through its platform. Therefore, when the economy is strong, there is more volume of transactions, which increases its income.
Bill.com’s flagship tool is a cloud-based digital inbox that allows businesses to consolidate all incoming invoices and pay them with a single click, then automatically post them to the books. It made a flurry of acquisitions in 2021, building on two businesses that enabled expansion into new verticals. The company bought Invoice2go, which businesses can use to create invoices and manage incoming payments, and it bought Divvy, an expense tracking and budgeting platform. Bill.com now serves a total of 386,100 customers.
When the company reports results for fiscal 2022, which ended June 30, it could reveal revenue of up to $625 million based on previous guidance. That would represent a whopping 162% growth from its 2021 result. But Bill.com may have just gotten heated, as it cites a $125 trillion global opportunity in payments volume from more than 70 million business customers. With its stock down 64% from its all-time high, now may be the time to get involved, especially if inflation starts to reverse.
A stock to crush in 2022 and beyond
Jamie Louko (Airbnb): Airbnb is coming off a hot first quarter where revenue soared 70% year-over-year to $1.5 billion, but the upcoming summer season could be even more lucrative. The US Travel Association reported that Americans spent $101 billion on travel in May 2022 – a new pandemic record. Additionally, gas prices are less of a concern for US travellers: 41% say rising gas prices would affect their decision to travel in the next six months. This is a substantial drop from 59% the previous month. Given that Airbnb saw a quarterly record 102 million nights and experiences booked in the first quarter, the company is likely benefiting from this strong demand.
This travel demand has already generated a lot of cash for Airbnb. In the first quarter, the company generated $1.2 billion in free cash flow, which it could use to capitalize on the long-term opportunity.
In the long term, the Airbnb brand and customer satisfaction could allow it to thrive. Airbnb has a reputation for offering stays in everything from treehouses to castles. Above all, it has this large-scale uniqueness with over 6 million active listings. Airbnb’s guest satisfaction scores are also well above those of its competitors. The company’s Net Promoter Score (NPS) is 31, which beats competitors like Vrbo and Reserve credits (BKNG -3.69%)both of which have an NPS of -83 and 25, respectively.
The company’s impressive cash generation could fuel further growth in these two areas: product differentiation and high customer satisfaction. This would help the company succeed in the years to come, making Airbnb a go-to site when booking vacations.
Stocks are cheap at 21.5 times free cash flow, which makes this investment very attractive right now. With both the short and long term looking promising for Airbnb, investors might want to buy this stock and hold it for the long term.
A leader in identity and access management
Trevor Jennewine (Okta): Cybersecurity provider Okta specializes in identity and access management (IAM), a framework that ensures only the right people can access sensitive data and applications. Okta Identity Cloud enables enterprises to enforce access policies based on device, location, time of day, and other contexts. Even better, it relies on artificial intelligence to assess the risk associated with each login attempt, and the platform can further authenticate users in a high-risk scenario, such as when a user behaves in an unusual way.
Okta stood out in two ways. First, its IAM platform integrates with more than 7,000 application and infrastructure providers, far more than competitors like Ping identity. These integrations accelerate the return on investment for customers. Of course, the prebuilt integrations don’t cover all scenarios, which is why Okta acquired Auth0 last year. The move made its developer suite more robust, allowing customers to easily add identity protection to custom applications.
Second, Okta is technology-neutral, which means the company would not benefit from a bias towards any particular software or cloud provider. In fact, Okta is encouraged to integrate as many different technologies as possible. The same cannot be said of Microsoft. As a cloud service provider, Microsoft has reason to direct users to its own infrastructure.
Collectively, Okta’s strong product and strong competitive position translated into respectable financial results. In the past year, revenue reached $1.5 billion, up 62% from the previous year. Ultimately, Okta’s loss under generally accepted accounting principles (GAAP) widened to $6.39 per diluted share, largely due to expenses associated with the acquisition of Auth0. But the company still generated a positive free cash flow of $45 million, and the addition of Auth0’s dev tools should be a great asset in the long run.
Looking ahead, management estimates its market opportunity at $80 billion, leaving Okta plenty of room to grow its business. On that note, the stock has fallen 67% from its peak, and the shares are currently trading at a reasonable price of 10.4 times sales – much cheaper than the three-year average of 29.9 times sales. sales. Given the essential nature of cybersecurity (companies must protect their sensitive applications and data regardless of macroeconomic variables such as high inflation), this growth stock is well positioned to rebound.