The stock market can play tricks on your mind. You feel invincible in a bull market, but in a bear market you feel like you won’t make any more money. This is a long fall for many growth stocks in 2022, but keep your head up. Historically, Wall Street has always recovered, and there is no reason why this will be any different.
The market is likely to rebound at some point, so now is a good time to start thinking about your top investment ideas for 2023. Stocks like Shopify (NYSE: STORE), Work day (NASDAQ: WDAY)and Boundary Sea (NYSE:SE) lose in 2022, but this is why they can be big winners in 2023 and beyond.
Save on these e-commerce stocks
Will Healy (Shopify): Most long-term Shopify investors seem to want to overlook 2022. This time last year, it was already flirting with the top. However, the bear market hit this one-time high-flyer hard. Since reaching its peak, Shopify has lost nearly 80% of its value.
Admittedly, the stock price seems to have advanced ahead of its growth rate. Also, e-commerce growth is slowing as consumers emerge from lockdowns, making prices unstable. However, the case for Shopify stock may have increase at that time from a competitive point of view. It has built an ecosystem to serve the direct needs (and many indirect needs) of e-commerce businesses.
Shopify Plus, its software package designed to attract large and high-growth businesses, continues to gain traction. ignoble Q3 2022 earnings callShopify President Harley Finkelstein revealed that Plus claimed 35% of all pro point-of-sale sales in Q3, up from 14% in the year-ago quarter.
In addition, Shopify’s Fulfillment Network (SFN) facilitates order fulfillment and returns for customers. With Shopify’s purchase of Deliverr complete, it can now be a one-stop shop for all logistics needs. The fact that Amazon being the only competitor in this area will help Shopify stand above its software-oriented competitors.
Still, Shopify has returned losses as network building costs weigh heavily on the bottom line. Also, while Q3 revenue of $1.4 billion was up 22%, it lagged the three-year compound annual growth rate for revenue of 52%.
However, for the remainder of 2022, the company predicts slower growth in operating expenses and a higher percentage of vendor solutions revenue. Merchant solutions, a segment that includes SFN and other business management services, accounted for 72% of the company’s revenue in Q3. Shopify’s revenue was also up 26% year over year, beating the average.
Moreover, the stock is sold at just 9 times sales, a big reduction from the 45 P/S ratio it reached a year ago. With the company positioned for increased growth, Shopify stock should experience a recovery in 2023.
Shares of this workforce management company may bounce back in 2023
Jake Lerch (Working Days): If you think 2023 could be a bounce-back year for the stock market (and I do), it’s worth thinking about: Which stocks are the most profitable? For me, Work day is a name that jumps off the page.
The company is a leading provider of cloud-based workplace solutions. It serves more than 50% of Fortune 500 companies, providing cloud enterprise solutions for human resources, financial planning, and analytics.
Like many tech stocks, Workday has had a rough 2022, with its share price down 48% this year. However, the company’s fundamentals remain solid. Workday reported strong second quarter earnings back in August and is due to report third quarter earnings in mid-November.
Income continues to grow over 20% on a year-over-year basis and now stands at $5.7 billion in the last 12 months. Of that $5.7 billion, $5 billion comes from subscription revenue. What’s more, back in August, management reiterated its long-term goal of reaching $10 billion in annual sales.
Workday continues to grow its customer base and has recently achieved FedRAMP-authorized status, meaning that the company can now sell its products to US government agencies.
It all adds up to a good environment for Workday in 2023 — if the broader economy can come together. Next year the Federal Reserve is likely to pivot away from the massive interest rate hikes that have become the norm in 2022. Meanwhile, double-digit inflation will eventually moderate, relieving some of the pressure that has held back tech stocks this year.
And that’s why I think Workday is poised to benefit. These are the names investors need to know now — before next year’s catalyst takes the stock higher.
This internet company is cutting costs and preparing for a big 2023
Justin Pope (Sea Limited): E-commerce, payments and gaming company Sea Limited was a big winner during the pandemic, rising to a peak of around 1,000% of its pre-pandemic share price. But as they say, easy to come, easy to go. Stocks have given up almost all of their gains throughout 2022. Wall Street can be irrational at times, which means it can overshoot both upside and downside.
You see an upside example when a stock ballooned price-to-sales ratio (P/S) of 30, a valuation that shows how much stock prices have exceeded business growth during the pandemic. But today, you see the opposite: The stock is trading at rock-bottom valuations, which may give others the impression that Sea Limited is a struggling company.
However, the data is mainly disputed. Sea Limited is generating more revenue than ever. The business has seen a surge in growth during the pandemic, including 158% year-over-year revenue growth in Q2 last year. But instead of declining after such a big leap, revenue increased another 29% in the second quarter of this year. Some may cringe at what is technically a slower growth rate, but it shows that the COVID-19 boost is no fluke. Some may even see growth back down again next year as growth is difficult compared to 2021.
The company is not profitable, but invests heavily to fund growth. Fortunately, the management has recognized the need to cut back some and not withdraw some expansion efforts in Latin America. Sea Limited is well funded, with $7.8 billion in cash, so the company is on solid financial footing.
Sea saw some bumps in the road, but the car was still on track. Investors may revisit this thinking if the company is burning through its cash reserves without making significant progress toward profitability. It burned $1.4 billion in the past year, so $7.4 billion should buy time. Assuming Sea Limited can continue to grow while reducing its cash burn, the valuation leaves room to move upside down once market sentiment improves.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jake Lerch has a position in Amazon and Workday. Justin Pope do not have a position in any of the stocks mentioned. Will Healy have a position at Shopify. The Motley Fool has positions and recommends Amazon, Sea Limited, Shopify, and Workday. The Motley Fool recommends these options: long January 2023 $1,140 calls on Shopify and short January 2023 $1,160 calls on Shopify. The Motley Fool has disclosure policy.
The views and opinions expressed herein are those of the authors and do not necessarily reflect those of Nasdaq, Inc.