Stocks are coming off the worst first half of the year since 1970. The selloff has hit tech investors particularly hard, as many of the market’s biggest growth names Nasdaq fell by more than two-thirds from all-time highs.
However, over the past few weeks, tech stocks have edged higher, with many rising even after missing revenue and earnings estimates. This could signal a short-term end to the bear market, assuming it hasn’t already ended. Such a rally is a bullish sign for stocks like DocuSign (DOCU 1.62%), Affirm Assets (AFRM 2.61%)and Sofi Technologies (SOFI -3.28%).
DocuSign has its challenges, but it’s not without a lot of benefits too
Jake Lerch (DocuSign): Putting that aside: DocuSign faces significant challenges.
Among his problems:
- CEO Dan Springer recently resigned.
- No permanent replacement has been named.
- The company has reduced its billing forecast for its current fiscal year (the 12 months ending January 31, 2023).
Now the concerns are not surprising, given that DocuSign has lost 77% of its value in the last 12 months. If a company’s stock has cratered in this manner, it implies that the company is not performing well.
But, for investors willing to endure some volatility, sharp declines in stock prices can provide a lucrative upside if a company can execute an appropriate turnaround.
Can DocuSign do this? I think so; Here’s why.
Unlike many tech stocks that have crashed over the past year, DocuSign isn’t losing money in spades. The company is cash flow positive and is approaching profitability. Analysts expect it to generate $1.72 per share in fiscal 2023 and $1.94 in 2024.
Moreover, his balance sheet is not a concern. The company has more than $800 million in cash; net debt is less than $210 million.
Moreover, DocuSign’s product is not only ubiquitous; it’s sticky. Enterprise customers who adopt DocuSign as their e-signature solution will likely stick around. Few organizations want to reinvent the wheel once they have solved a problem. It’s simply easier to stick with DocuSign than risk adopting a new product that might lack certain features or be unreliable.
If that wasn’t enough, DocuSign is also a potential takeover target. Investors shouldn’t rush into the name just because of this, but it’s something to keep in mind.
You can buy this stock now and enjoy later
Justin Pope (Affirm Holdings): Consumer credit is big business; Americans collectively have about $890 billion in credit card debt. Credit cards have been the go-to for quick and easy loans for decades, but they come with many drawbacks, such as high interest rates and fees.
Affirm is a buy now, pay later company that aims to provide a more consumer-friendly option. Affirm partners with over 207,000 merchants and over 12.7 million users shop on Affirm’s website or smartphone app. Users can get instant approval for a loan covering the item they want at the point of sale.
While credit cards give you an open line of credit, Affirm values every item financed; if Affirm thinks you can’t afford to pay it back, it won’t approve it. This means you are not as likely to go into debt. About 42% of Affirm’s loans are interest-free, and the company charges no late or hidden fees of any kind. The company makes money from the interest it charges and from merchant and interchange fees.
Research firm Research and Markets estimates that the buy now, pay later market could grow to $39 billion by 2030, an average of 26% per year by then. Affirm has partnered with major retailers including Amazon, Shopify, Targetand walmartwhich could give the company enough exposure to take advantage of years of growth if the buy now, pay later trend continues.
Unfortunately, the stock is down around 82% from its peak due to the current bear market and fears that consumers are buying now and never pay. A recession could undoubtedly hurt borrowers’ ability to repay their loans, but so far it appears to be under control; just over 2% of loans are 30 days or more past due.
Meanwhile, Affirm has long-term plans to expand its ecosystem into other aspects of personal finance, including its upcoming Affirm+ debit card and app. The stock’s sharp drop could translate into significant returns on investment if the company can show that its business model is working and can weather the economic turbulence.
This emerging fintech is becoming a one-stop-shop for personal finance
will heal (SoFi Technologies): Negative sentiment from outside forces punished SoFi stocks. SoFi has a strong presence in the student loan market, and the continued moratorium on student loan repayment has created uncertainty about the company’s performance.
Additionally, as the current market is less tolerant of high-growth, unprofitable stocks, SoFi has struggled to gain traction. These factors may have contributed to the 67% drop in the stock price from its peak.
But despite these challenges, SoFi stands out as a high-conviction growth stock in an increasingly crowded fintech space. It is one of the few fintechs to hold a banking charter, due to its acquisition of Golden Pacific Bank. This allows him to make loans without involving a third party.
Moreover, its ownership of the Galileo API and Technisys gives it a vital role in the industry. These platforms power offers such as ACH payments and cards for other businesses. To that end, SoFi has set itself on a path to becoming what it describes as the “[Amazon Web Services] fintech.” That means it will support an “end-to-end banking technology stack” with services ranging from verification to card feeding to lending.
These services also bolstered its net revenue, which stood at $693 million for the first half of 2022, up 62% from the same period of 2021. As expenses did not only increased by 17%, SoFi reduced its net loss for the first two. quarters of 2022 to $206 million, compared to $343 million in the first half of 2021.
Additionally, revenue of $830-835 million forecast for the second half of 2022 would represent an increase of approximately 50% year-over-year. This should mean that it will continue to grow at a rapid pace for the foreseeable future.
Moreover, its P/S ratio fell to 5, close to last fall’s levels. This sales multiple could increase further given that SoFi stock rose 28% the day after its second quarter results were released. Additionally, as it continues to attract more users to its platform, the stock could offer outsized returns to shareholders buying at these levels.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Jake Lerch holds positions at Amazon. justin pope holds positions at Affirm Holdings, Inc. will heal has positions in Shopify and SoFi Technologies, Inc. The Motley Fool has positions in and recommends Affirm Holdings, Inc., Amazon, DocuSign, Shopify, Target and Walmart Inc. The Motley Fool recommends the following options: Long January 2023 $1,140 calls on Shopify, long calls of $60 in January 2024 on DocuSign and short calls of $1,160 in January 2023 on Shopify. The Motley Fool has a disclosure policy.