Did you miss out on the mega-dip of March 2020? Well, the market meltdown of early 2022 is giving investors another chance to buy heaps of stocks that once rocketed upwards at a deep discount.
Of course, not every high-growth stock that fell down this year deserves to get back up, and many won't. Luckily there's an easy way to tell which stocks are most likely to bounce back. They're the ones with cash in the bank and the means to generate lots more.
Shares of these three fintech stocks have been beaten down to prices we haven't seen in over a year. That's a little surprising when you consider how much cash they're generating. Here's how patient investors who buy these stocks now could come out miles ahead down the road.
1. Coinbase Global
Coinbase Global (NASDAQ:COIN) stock has lost nearly half its value since reaching a peak last November. Now that the stock is trading near a 52-week low, you can scoop up shares for just 4.3 times the amount of free cash flow generated over the past 12 months.
Declining cryptocurrency prices generally translate into significantly less trading activity, but Bitcoin, Ethereum, and an endless array of altcoins aren't going to disappear any time soon. Coinbase Global pockets trading fees that could make a stockbroker blush, so it doesn't take a crypto trading frenzy like we saw last year to drive strong profits.
Third-quarter transaction revenue plunged 44% from the previous quarter to $1.1 billion, but premium service subscription revenue jumped 41% to $145 million. Altogether, the company still reported an impressive $618 million in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).
Coinbase Global is already raking in cash hand over fist as a trading platform for cryptocurrencies themselves. Before the end of the year, though, growth could accelerate with the planned launch of a marketplace for trading non-fungible tokens (NFTs).
2. Shopify
Now that the consumer spending boom brought about by the lockdown period of the pandemic has faded, Shopify (NYSE:SHOP) stock has tumbled to a 52-week low. Shares of the e-commerce giant are down by nearly half since the peak they reached last November despite being strongly profitable. Shopify reported an impressive $458 million in free cash flow over the past year.
Shopify's recently depressed price looks like a terrific buying opportunity for patient investors. That's because it's going to take a lot more than a temporary consumer trend to stop this cash cow from delivering more profits down the road.
At its heart, Shopify helps small business owners compete with their larger rivals. That usually includes helping businesses convert social media engagement into new product sales. Shopify's biggest draw, though, is a giant logistics network that enables much better fulfillment services than Shopify's clients could hope to provide by themselves. Even a sole proprietor just starting out with a new retail business can tap into Shopify's network of warehouses, which is rivaled only by Amazon and a few big box stores.
In addition to your cousin's homemade candle shop, Shopify partners with some of the world's most recognizable brands, including Heineken, Logitech, and Hallmark. Making itself an indispensable partner for businesses large and small helped top-line revenue soar 46% year over year in the third quarter to $1.1 billion. With a relatively untapped network of entrepreneurs outside of the U.S. and an important partnership with Global-E Online to bring them into the fold, the company has everything it needs to keep producing impressive gains for many years to come.
3. Block
Block (NYSE:SQ) is another high-growth stock that's been tumbling despite strong cash flows from operations. Shares of this money machine soared in 2020 and early 2021, but the party didn't last. The troubled fintech stock has lost more than 60% of its value since it peaked last summer, despite reporting $794 million in cash from operations over the past 12 months.
Buying shares of Block is a great way for investors to keep a finger on the pulse of blockchain-based innovation without owning any specific currency directly. Block's payment processing business, Cash App, began allowing its users to trade Bitcoin in 2017. In order to facilitate transactions, the company's been amassing Bitcoin itself and finished September with a Bitcoin investment that had a carrying value of $149 million.
Market prices pushed the fair value of Block's Bitcoins up to $352 million last September. While Bitcoin's previous gains have mostly been wiped out, Block's still in a position to complete heaps of blockchain-based transactions for everyday goods and services.
At recent prices, you can buy Block shares for just 2.6 times forward sales expectations, which is awfully cheap for a company growing this fast. The company processed a whopping $45.4 billion worth of payments in the third quarter, which was 43% more than it processed a year earlier.
