Shopify, Snowflake, and Palantir may be available at lower prices soon.
"In the short run, a market is a voting machine, but in the long run, it is a weighing machine," A golden rule described by a value investor.
Unfortunately, throughout the pandemic, many investors ignored that golden rule and paid outrageous amounts for unprofitable enterprises. They valued companies based on sales rather than profitability, and they avidly pursued high-growth companies with double-digit price-to-sales ratios.
However, the frantic voting phase has over, and the weighing phase has resumed, as inflation, increasing interest rates, and other macroeconomic headwinds have prompted a pullback from risky stocks.
Many high-growth stocks were hammered during the drop, and the situation may worsen before these equities stabilize. If the current market sell-off deepens, I believe investors should keep a careful eye on three high-growth stocks: Shopify (SHOP 1.96 percent), Snowflake (SNOW 1.20 percent), and Palantir (PLTR 1.57 percent), which may finally see their valuations reset to acceptable levels for new purchasers.
1. Shopify
Last November, Shopify's stock reached an all-time high of $1,762.92 per share. It is currently trading at around $31.
The e-commerce services company lost steam for three basic reasons: revenue growth slowed in a post-lockdown market, it began ramping up investments, and valuations became overheated.
Shopify's slowdown is unsurprising given that many other e-commerce companies are also dealing with difficult post-pandemic comparisons, However, its technology, which allows merchants to manage their own online stores, handle payments, and fulfill orders, continues to pose a competitive challenge to dominant marketplaces such as Amazon.
However, at seven times this year's sales, Shopify cannot be termed cheap. I believe the stock will eventually reach a low of around five times sales —
2. Snowflake
Snowflake was another hit during the pandemic. The cloud-based data warehouse company's stock peaked at $405 in November, but it is now trading in the high $140s.
Snowflake's stock fell because its growth was slowing, it was still severely unprofitable, and its valuations were excessive. Despite the dramatic decrease, the stock is still trading at 28 times this year's sales.
However, Snowflake is unlikely to turn a profit anytime soon, and it may face stiff competition from Amazon's Redshift and Microsoft's Azure Synapse, both of which are embedded within the two tech giants' bigger cloud infrastructure platforms. Snowflake's services are also hosted on Amazon and Microsoft's cloud infrastructure platforms, thus it is paradoxically paying cloud hosting charges to two of its biggest competitors.
3. Palantir
Palantir, a data mining company, will go public through a direct offering in September 2020. Its stock began trading at $10, soared to an all-time high of $39 last January, and then returned to around $10.
Palantir's revenue surged 47 percent in 2020, then another 41 percent to $1.5 billion in 2021, as the company's enterprise division grew faster than its government business. It also finished the year with a 131 percent dollar-based net retention rate. It anticipates yearly revenue growth of at least 30% through 2025.
Palantir maintains its optimistic view because its tools are widely used by US federal entities. It uses its robust reputation to attract more enterprise customers.
I believe Palantir's business is well-run, but its stock remains overpriced in comparison to its peers. It also dilutes its own shares significantly through stock-based remuneration. In instance, Twilio, which predicts organic revenue growth of at least 30% over the next three years, trades at only five times this year's sales. As a result, I'd only buy Palantir if its shares fell in half again following a market crash.
Comments
Post a Comment