Two tech stocks to buy in the event of a downturn
The year has been volatile for the Nasdaq-100 (QQQ), with the index trading in a range over 22% from its March low to its recent high. Fortunately, volatility has been on the rise more recently, with QQQ rising 13% in the past 30 days alone. For investors already in the market, this was an opportunity to record strong profits. However, many names are trading at high valuations for those who want to put the money to work, with some tech names trading at free cash flow yields of less than 2% and up to 50 times sales. While most growth names are expensive, there are some names that sound interesting, one being a story of growth at a more reasonable price and another being a mega-cap that is worth keeping on its shopping list. he’s testing his recent breakthrough again. Let’s take a look at a few names below:
Lightspeed POS Inc (LSPD) and Amazon (AMZN) have little in common, with LSPD having a market cap of 10 BB and in the early stages of its growth and AMZN sporting a market cap of 1.8 TT and being much more mature. However, the two share a trait, impressive revenue growth and projected earnings growth, with AMZN expected to double annual earnings per share between fiscal 2020 and fiscal 2023. Meanwhile, Lightspeed is expected to generate positive earnings in the year. in FY2023 ($ 0.04), with a potential for four-digit annual EPS growth in FY2024 ($ 0.46). Notably, both companies are disruptors with LSPDs fueling the future of commerce, intending to be a commerce platform for the entire value chain with its recent acquisition of NuOrder and Ecwid.
Starting with Lightspeed, the company just finished a massive quarter in the fourth quarter of fiscal 2021 with revenue of $ 82.4 million, which translates into 127% year-over-year growth. the other. This is the highest quarter of growth for the company since its IPO in the third quarter of last year, with its best previous quarter reaching 78% growth. On a sequential basis, this 127% growth rate translated into an acceleration of 4,900 basis points from the most recent quarter (Q3 fiscal 2021), with a much higher gross transaction value (33.7 billion in FY2021 versus $ 22.3 billion) thanks to a sharp increase in total customer locations. At the end of fiscal 2021, Lightspeed had approximately 119,000 total locations, rising to approximately 140,000 with the recent acquisition of Vend. Notably, average revenue per user also increased significantly, and subscription / transaction-based revenue accounted for 91% of all revenue in the most recent quarter.
(Source: YCharts.com, author’s chart)
While fiscal 2021 has been a huge year, and some might speculate that it will be difficult to replicate these results, the estimates suggest otherwise. As noted above, LSPD is expected to achieve revenue of over $ 460 million in fiscal 2022, resulting in sales growth of over 100% after exceeding 82% growth in the last year. This would be a significant year-over-year acceleration and reduce the company’s revenue multiple from 44x to just under 22x. If we look to FY2023, revenue is expected to increase by 45%, leaving LSPD just 15 times the FY2023 sales estimate. Generally, I wouldn’t be interested in trading above 40 times sales, but when the business is expected to experience triple-digit growth in the current fiscal year, the revenue multiple is less relevant. Given this growth, a revenue multiple of 22 is not unreasonable, and that would translate into a market cap of over $ 15.2 billion based on estimates of around $ 690 million in revenue. for fiscal year 2023.
If we take a look at the technical chart for LSPD, we can see that the stock appears to be building a cup base, and a jerk in that grip could present a low risk buying opportunity. This would translate into a dip towards the $ 70.00 level which would shake all investors hoping for a shallow grip as we are currently seeing. A pullback of this magnitude would also cause the stock’s market cap to decline slightly, leaving the LSPD to trade at more than 20x the revenue estimate for fiscal 2022 of around $ 460 million. Of course, there is no guarantee that the stock will pull back sharply, but if we see a drop below $ 69.50, I would view this as a low risk buy opportunity.
The second name to watch closely is Amazon, which also had a huge quarter with sales up 44% year-on-year to $ 108.5 billion. This matches the company’s high two-year revenue growth rate of 44% in the previous quarter. In addition to strong double-digit sales growth, operating margins continued to strengthen, standing at 10.0% from 5.3% a year earlier. This contributed to an almost 10% increase in free cash flow despite significant investments and a 69% jump in operating cash flow. This strong performance was driven by accelerating revenue growth for Amazon Web Services, with consumer activity also robust, particularly internationally.
As for recent investments that will pave the way for future growth, Twitch has up to 35 million daily visitors and Prime Video streaming hours have increased 70% year over year, Amazon Studios having a strong awards season. The addition of more titles to Prime Video and the addition of Prime Music have improved the value proposition for Prime members, increasing the potential for retention on the road in this growing segment. Based on the exceptional first quarter results, annual EPS estimates for fiscal 2021 have increased to $ 48.71, with some estimates reaching $ 60.00.
That would translate to over 16% growth at the low end of the estimate (FY2020: $ 41.83) and around 44% growth at the high end of the current forecast. If we look to fiscal 2022, the estimates have also increased and the lower estimate of $ 66.84 seems conservative. Even if AMZN only hits those numbers, it would translate into another year of high double-digit profit growth, paving the way for annual EPS of up to $ 100.00 in fiscal 2023. So, then Some investors might argue that AMZN looks expensive at over 65 times sliding EPS, the stock looks very reasonably priced considering the potential of $ 100.00 in annual EPS for fiscal 2023, leaving AMZN barely 35 times the earnings for a mega-cap with a robust growth rate.
(Source: YCharts.com, author’s chart)
If we take a look at AMZN’s technical chart, the stock appears to be taking annual EPS to new highs, with AMZN continuing its strong uptrend from its massive break in base last year and recently breaking out of a base. months close to $ 3,350. With AMZN more than 10% above this breakout the stock is no longer at a low risk buy point, but if the stock tested that breakout level again it would represent a low risk point to add to its position. Additionally, a drop to $ 3,350 would leave stocks at an even more attractive valuation. So while I don’t plan to increase the stock here, I might look to increase my bought position to $ 1,900 if we see a multi-week pullback and some market weakness in general. As shown below, AMZN has room for a stock price of $ 5,000 over the next 2 years if it tests its top channel line.
With the Nasdaq Composite up nearly 15% year-to-date, I don’t think this is the time to rush to add new long exposure. However, AMZN and LSPD appear to be strong candidates for downside buying if we see general market weakness given their exceptional growth rates and market leadership positions. Therefore, I see them as two names to keep at the top of your shopping list if turbulence strikes. For now, I am staying long on AMZN and may be looking to open a position in the LSPD at $ 69.50 or less.
Disclosure: I am long AMZN
Disclaimer: Taylor Dart is not a registered investment advisor or financial planner. This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy or a recommendation regarding a securities transaction. The information contained in this document should not be interpreted as financial or investment advice on any subject. Taylor Dart expressly disclaims all liability for actions taken based on any or all of the information contained herein.
AMZN stock was trading at $ 3,630.93 per share on Thursday afternoon, down $ 50.75 (-1.38%). Year-to-date, AMZN has gained 11.48%, compared to a 16.63% increase in the benchmark S&P 500 over the same period.
About the Author: Taylor Dart
Taylor has over a decade of investment experience, with a particular focus on the precious metals industry. In addition to working with ETFDailyNews, he is a leading writer on Seeking Alpha. Learn more about Taylor’s background, as well as links to his most recent articles. After…