Technical investors have made some big gains over the past year, but some are starting to get anxious. Concerns that rising yields and more stimulus by the government could eventually lead to inflation have upset some investors who invested their money in high-tech technology stocks during the pandemic.
But the recent technological sell-off should not worry long-term investors. The drop offers an excellent buying opportunity if you know where to look. We asked some Motley Fool contributors to buy some good tech stocks to buy now Shopify (NYSE: STORE), Lemonade (NYSE: LMND), en Octa (NASDAQ: OKTA) at the top of their list. Here’s why.
Image Source: Getty Images.
Dispose of baby with bath water
Danny Vena (Shopify): With all the market turmoil we’ve seen over the last few weeks, it’s hard to know if it’s just a sector change from technology stocks and pandemic reopening plays, or if we’re on the verge of a full-blown market crash. “A rose with any other name will smell so sweet,” or so the saying goes.
Investors sell good and bad businesses, or throw the baby out with the bathwater. This creates some compelling bargains for companies in the technology sector. One stock investors should buy now is Shopify.
When the e-commerce business announced its fourth-quarter results in mid-February, the numbers that characterized the past year did not slow down. Revenue of $ 978 million grew 94% year-on-year, while gross merchandise (GMV) – or the value of products sold on its platform – rose 99% to more than $ 41 billion.
These numbers were driven by revenue up 53% and merchandise solutions up 117%. At the same time, monthly recurring revenue grew by 53% to $ 83 million, fueled by the large number of merchants still joining Shopify’s platform, even after a record third-quarter flow.
The company’s increasing leverage began as net income for the quarter grew to $ 124 million, compared to $ 0.8 million in the previous quarter. This resulted in earnings per share of $ 0.99, compared to $ 0.01. This illustrates that as Shopify continues to add more retailers and increase the value of sales, an increasing amount of profits will drop to the bottom line.
It is important to note that although the rising acceptance of e-commerce associated with the pandemic may slow it down, it does not go away. The U.S. Department of Commerce reported that online sales grew 32% year-over-year in the fourth quarter of 2020, accounting for nearly 16% of total retail sales. Now that consumers have become accustomed to the ease and convenience of online shopping, there is simply no going back.
As Shopify is more than 23% lower than its recent highs, it looks slightly cheaper than the comparison, giving investors the opportunity to get a top-tier company at a rare discount.
Image Source: Getty Images.
Is the market souring this sweet disruption?
Brian Withers (lemonade): Lemonade takes on the established insurance industry with its disruptive customer service model powered by artificial intelligence and chatbots. Customers like that they can get quotes on insurance products (pets, tenants and homeowners) in less than two minutes, and a third of all claims are paid immediately. But it goes even further by allowing its members to choose a charity to take advantage of unused premiums not paid to claims at the end of the year.
This innovative model that puts the customer first achieves a market share. Its “valid premiums”, or the sum of all annual premiums in force at the end of the period, grew by 87% year on year. Customers grew by 56% during the same period, while premiums paid annually per customer increased by 87%, improving its gross loss ratio. Even the quarter-on-quarter comparisons are strong amid the ongoing pandemic.
|
Metrics |
Q4 2019 |
Q3 2020 |
Q4 2020 |
Change (QOQ) |
Change (YYYY) |
|---|---|---|---|---|---|
|
Effective premium |
$ 114 million |
$ 189 million |
$ 213 million |
13% |
87% |
|
Clients |
643,000 |
941,000 |
1 million |
6% |
56% |
|
Premium per customer |
$ 114 |
$ 201 |
$ 213 |
6% |
87% |
|
Gross loss ratio |
79% |
72% |
71% |
(1%) |
(8%) |
Data source: Lemonade. QOQ = quarter over quarter. JOJ = year over year.
It looks like the company is shooting at all cylinders. So why is the stock 50% lower than its everyday high of earlier this year? There are a few reasons. First, tech stocks have had a sell-out over the past few weeks, returning the incredible gains over the past 12 months. Second, reported revenue decreased 13% annually to $ 20.5 million. This may confuse investors, but management explained that due to the change in the business model on 1 July 2020, to use proportional reinsurance, the comparison between the year-on-year income ‘is not directly comparable’. Finally, the market may also have been disappointed with the company’s prospects, which came a little below analysts’ expectations. Add it all up, and smart investors see a stock for sale today.
All in all, the company is working well on its strategy, winning customers, increasing its offering and taking market share. Investors will do well to take advantage of the stock’s discount price today with the mindset of holding over the next three to five years (or more). You will be happy that you did.
Image Source: Getty Images.
Ignore the noise, this technological stock is still growing fast
Chris Neiger (Octave): Okta, the identity and access management company (IAM), experienced extraordinary growth in 2020, and investors responded by increasing the company’s share price by 120% last year. But the company’s share price fell recently after Okta reported its results in the fourth quarter of 2021.
Investors dropped the stock by about 10% earlier this week, but the sellout was a bit overreacting. The company reported a 40% year-over-year revenue increase of $ 234.7 million during the quarter. It’s still very impressive and there’s probably more where it’s coming from. Octa’s management has said that fiscal revenue from 2022 will increase by 30% at the highest point of the lead.
Investors were also nervous that Okta had spent just $ 6.5 billion to acquire cloud identity startup Auth0. The acquisition will help Okta expand its identity management business to new platforms and services it does not currently reach. Of course, that’s a huge amount of money to spend, but it should help the company further exploit the $ 55 billion IAM market.
If investors step back for a moment and stop looking at short-term volatility, they will see that Octa has had a fantastic year in fiscal 2021 and still wants growth in the coming year. In addition, the company’s latest acquisition should increase Okta’s position in the fast-growing IAM market and help the company stay ahead of its competition.
Therefore, Okta’s recent drop in the share price for long-term investors seems to be an excellent opportunity to pick up shares.
This article represents the opinion of the author, who may not be in agreement with the ‘official’ recommendation position of a Motley Fool premium advisory service. We are furry! Questioning an investment thesis – even one of our own – helps us all to think critically about investments and to make decisions that help us become smarter, happier and richer.