These 3 stocks cry out for buy in the middle of tech sell
After an epic rise in 2020, tech stocks have had a tough time kicking off 2021. Some companies are experiencing slowdowns in their growth trajectories, as they begin to catch up with the surge in business they have. known a year ago when the pandemic started.
That doesn’t mean all of those businesses are spent, though. Far from it: many have incredibly bright prospects and are crying out to buy after being caught in the recent sale. Right now, three Fool.com contributors think Wix.com (NASDAQ: WIX), Roku (NASDAQ: ROKU), and Naspers (OTC: NPSNY) worth a look.
Building modern websites for small businesses
Nicholas Rossolillo (Wix.com): Wix has had a fantastic start to 2021, but many investors have chosen to focus on the company’s decision to stop disclosing specific user accounts and premium subscribers (the service has reached 200 million registered users). worldwide in February and nearly 5.5 million premium subscribers by the end of 2020). Sometimes a company stops releasing metrics that no longer look good, but I don’t think that’s what’s happening here. Wix is already enjoying huge success, but growth in user numbers and, more importantly, user activity on Wix services, is already implicated by the company’s revenue trajectory.
And on that front, Wix did exceptionally well in the first quarter of 2021. Revenue grew 41% year-over-year to $ 304 million, and management forecasted revenue growth of 29% to 30. % full year, to at least $ 1.28 billion – – on top of the 30% sales gain it posted in 2020. Free Cash Flow (FCF) is only expected to be $ 62 million of $ 72 million as the company spends to expand its reach in global e-commerce, FCF’s profit margin of around 5%. However, Wix generated an FCF margin of almost 20% last year, which is pretty good for a high growth tech company. Eventually, I expect Wix to return to those levels of profitability, and when it does, it will be a much bigger company than it was before.
For now, however, Wix is focused on the tens of millions of small and medium-sized business relationships around the world. New product launches – like Editor X for ad agencies and Wix integration with AlphabetGoogle, so that businesses can manage their web search presence, will help them deepen these relationships; the same will apply to the acquisition of the gift card and the Rise.ai store credit technological equipment. In fact, Wix’s goal is to develop easy-to-use e-commerce capabilities to help small businesses – from local restaurants to event centers to fitness instructors – have a great online presence. CEO Avishai Abrahami said during the first quarter earnings call that the goal was to have half of all new web content created on Wix within the next five to seven years.
The company is already well advanced in accomplishing its mission. I think Wix stock is compelling value, having been sold due to myopic views on eliminating user count metrics. The shares are trading for less than 11 times the full-year revenue forecast, the cheapest they’ve been since the start of the pandemic, even though the company’s growth trajectory has not lost any momentum. its momentum. For my part, I am a buyer at these levels.
A sure winner in the streaming media wars
Anders Bylund (Roku): Expert in media streaming technology Roku (NASDAQ: ROKU) soared 148% in 2020, but struggled to maintain that momentum in 2021. These days the stock is trading over 30% below January highs.
The point is, Roku’s long-term growth story really hasn’t changed. The shifting attitude of investors is based on broader market trends, not loopholes in Roku’s business plan.
This company crushes the targets of analysts with astonishing consistency. Roku has generated positive profits in the last three quarterly reports, while the street expected negative results in all cases. Revenue has beaten analysts’ estimates by 15% on average over the same period, including a 17% outperformance in the recent Q1 update.
Roku is often lumped together with other stocks that rose sharply during the 2020 coronavirus lockdowns. The basic assumption is that Roku’s business outlook is sure to fade once the health crisis is over, causing a massive drop in prices. price.
This is a big mistake. Roku’s value as a long-term investment may have been slightly boosted by the pandemic, but the media streaming market began to explode ahead of COVID-19 and will continue to disrupt the global media market. for many years to come.
“Streaming services take advantage of the tools Roku offers to help grow audiences and ensure the success of their streaming business,” said Anthony Wood, founder and CEO of Roku, during the earnings call. first trimester. “We believe that the inevitability of streaming is clear and that Roku’s business model allows us to optimize streaming for all stakeholders, including viewers, advertisers and content partners.”
In other words, Roku stands to gain as media streaming services overtake cable TV and theaters around the world, and it doesn’t matter which streaming services come out on top. All of them increasingly depend on Roku’s technology platforms and ad buying services.
And now I can buy this big winner with a 30% discount. Where do I register?
Top-notch large cap at half the price, with a short-term catalyst on the horizon
Billy Duberstein (Naspers): Chinese internet giant Tencent Holdings (OTC: TCEHY) is down just over 20% from its February highs, which isn’t as bad as many software stocks, but still a lot worse than FAANG stocks here in the US.
But the very big deal is not in Tencent itself: it is in its largest shareholder, Naspers, which owns nearly 29% of the Chinese giant through its majority stake in Prosus (OTC: PROSY). Both stocks are down by a similar amount. For those unfamiliar with the company, Naspers invested $ 32 million for a third of Tencent in 2001. Flash before today, and this stake is now worth nearly a quarter of a trillion dollars.
The problem? Naspers began trading at a huge price for Tencent’s value alone, not to mention his billions in other emerging market companies in classifieds, fintech, and food delivery. Naspers attributed the growing discount to its listing on the Johannesburg Stock Exchange (JSE), so in 2019, Naspers created Prosus. This company essentially housed all of its investments outside of South Africa (including Tencent) and was listed on Amsterdam’s largest Euronext stock exchange, selling around 27% of Prosus to the public. But that didn’t really work either: Prosus then started selling at a similar discount … and Naspers traded at a price equal to the value of its stake in Prosus.
So why is Naspers such a compelling value today? Because Naspers and Prosus have taken three recent steps that could end the reduction later this year. First, Prosus announced a $ 5 billion share buyback program in October, split between Prosus and Naspers shares, and Naspers just revealed that Prosus had already bought back 3% of the outstanding shares in about six months. Buying back shares at a massive discount to intrinsic value adds long-term value to shareholders.
Second, Prosus cashed in around 2% of Tencent in early April, at higher prices than Tencent’s deals for today, reducing its stake from 31% to around 29%. This sale brought in $ 14.6 billion. Now full of cash, Prosus can use this windfall to expand its non-Tencent business and / or continue to buy back shares.
Finally, following the partial sale of Tencent’s stake, Naspers and Prosus have just announced a share exchange plan, in which Prosus would exchange its less discounted shares for more updated Naspers shares, with the aim of acquiring 49.5% of Naspers. The idea is that this would reduce Naspers’ 23% weighting on the JSE, giving it more “leeway” to move towards fair value. Meanwhile, Prosus will have a larger free float, and therefore get higher weightings in European indices and exchange traded funds, which could theoretically close the haircut at Tencent. In addition, the company announced the possibility of another repurchase of Prosus shares for $ 5 billion after the transaction.
Between the ongoing buybacks and the potential catalyst for the next share swap (which is slated to take place in Q3), investors can get a nice double haircut today – with another potential catalyst on the horizon, after the sale. by Tencent / Prosus / Naspers -disabled.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.