Estimated read time: 3 minutes
Publication date: 6th Apr 2022 15:50 GMT+1
A low interest rate environment allowed growth companies access to cheap capital and fund their expansion plans. However, in recent months, growth stocks have grossly underperformed the broader market. In mid-March, the tech-heavy NASDAQ Composite index was down 22% from all-time highs, officially entering the bear market territory.
However, every pullback in the past has been wiped away by a bull market rally, making most major corrections a buying opportunity. Here, you can buy quality growth stocks at a lower multiple. Let’s take a look at three such growth stocks you need to buy right now.
Down 62% from all-time highs, PayPal (NASDAQ: PYPL) is valued at a market cap of $137 billion. The fintech giant ended 2021 with a total payment volume of $1.25 trillion, an increase of 33% year over year. Now, PayPal expects TPV to surpass $1.5 trillion in 2022, which indicated a double-digit growth rate.
Additionally, PayPal’s base of 426 million active users conducted 19.3 billion transactions, which means each active account undertook 45.3 transactions in the last four quarters. In 2020, the average payment transaction for each account stood at 40.9.
So, in addition to expanding its user base, PayPal has ensured existing users embrace its digital payments platform over time. PayPal acquired buy now pay later company, Paidy, for $2.7 billion last September. It will now offer customers to finance purchases and expand its ecosystem in the process.
Analysts tracking PayPal expect sales to rise by 16% to $29.4 billion in 2022 and by 19.7% to $35 billion in 2023. Comparatively, its adjusted earnings to increase at an annual rate of 17.3% in the next five years. PYPL stock is valued at a forward price to sales multiple of 4x and a price to earnings ratio of 25x which is very reasonable.
Shares of Meta Platforms (NASDAQ: FB) are down 40% from record highs. Investors are worried about privacy changes to Apple (NASDAQ: AAPL) devices which should impact ad sales of digital advertising companies. While privacy changes may impact the ability of advertisers to reach their target audience, the digital marketing market continues to expand rapidly.
Meta is inarguably the world’s largest social media platform and ended 2021 with 3.6 billion monthly active users, an increase of 9% year over year. Its sales grew by 37% year over year to $118 billion while net income was up 35% at $39.4 billion. Comparatively, its free cash flow surged 67% to $38.4 billion in 2021.
Meta can use its robust cash flows to fuel its metaverse ambitions or even look to grow aggressively via acquisitions. The company is valued at $631 billion by market cap and is trading at less than 5x forward sales. In fact, FB stock is also valued at an attractive price to earnings multiple of 18.7x.
Formerly known as Square, Block (NYSE: SQ) changed its name to reflect the company is now expanding into the blockchain business. Block has already built an ecosystem of brands where it offers small and medium enterprises access to tools such as invoicing, cash flow management, and much more.
Block’s Cash App is a peer-to-peer payments application that is gaining traction among the underbanked communities. It offers users the ability to own debit cards, as well as invest in stocks and cryptocurrencies.
Block reported sales of $17.7 billion in 2021, an increase of 86% year over year. Comparatively, its gross profits rose by 62% to $4.42 billion. The Cash App reported gross profits of $2.07 billion, accounting for more than 40% of the gross margin.
SQ stock is valued at a forward price to sales multiple of 4.3x and a price to earnings ratio of 100x, which is expensive. But its also trading at a discount of 45% to consensus price target estimates.
Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.
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