Key Points
Investing in attractive stocks on the dip is a great way to earn above-average returns over the long run.
The three stocks below have faced some challenges, but their prospects look fairly strong.
- 10 stocks we like better than SoFi Technologies ›
The best time to buy a stock may be when it is experiencing a temporary pullback from which it will likely bounce back, rather than during a strong bull run with little -- if any -- additional upside. Thankfully, even as broader equities continue to perform well, there are plenty of companies in the first category that might be worth investors' attention. Let's consider three examples: SoFi Technologies (NASDAQ: SOFI), Robinhood Markets (NASDAQ: HOOD), and TransMedics Group (NASDAQ: TMDX). Here is why these three stocks are worth investing in after lagging the market this year.
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1. SoFi Technologies
Shares of SoFi Technologies have declined 34% this year. The company was hit by a short-seller report that sent its stock price sinking, although it has categorically denied the allegations made against it. Elsewhere, SoFi's first-quarter update was disappointing, as the market was not satisfied with the company's guidance. Even so, SoFi's actual financial results were strong. The company's total revenue jumped 43% year over year to $1.1 billion, a record quarterly net revenue for the fintech specialist. Also, SoFi's adjusted earnings per share (EPS) doubled to $0.12.
Further, the company's members reached a record 14.7 million, up 35% from the year-ago period.
SoFi is performing well, and although there may be some headwinds in the near-term -- especially if economic conditions worsen -- there are solid reasons to be bullish about its long-term outlook. The company's entirely online business model and growing product portfolio are particularly attractive to younger people. That's partly why key metrics continue trending up, and the company is arguably developing a competitive advantage from switching costs.
The more its users rely on it for a variety of financial services, the harder it will be for them to leave its ecosystem. And there is plenty more fuel for growth, even considering its current ecosystem. SoFi has just 1.5 products per member, and cross-selling additional services to its active users could be a meaningful source of growth. Lastly, SoFi's valuation has become much more reasonable after the sell-off. The company is trading at 30x forward earnings.
While that's still much higher than the 15x average for financial stocks, SoFi is arguably worth the premium, given its fantastic financial results. SoFi is somewhat risky, but those comfortable with volatility should consider initiating a position at current levels.
2. Robinhood Markets
Robinhood's first-quarter results were disappointing, largely due to its cryptocurrency business. Crypto-related revenue sank during the period, dragging down top-line growth. Robinhood's revenue increased by 15% year over year to $1.07 billion. But crypto trading revenue came in at $134 million, down 47% compared to the year-ago period. Robinhood's reliance on its crypto business will remain a risk that investors should keep in mind.
However, it's worth noting that the company is slowly decreasing its exposure to this volatile market. For instance, sales from Robinhood's Gold premium subscriptions are growing at a good clip. During the first quarter, the company's "other revenue," which includes Gold premium subscriptions, grew 57% year over year to $85 million. That's still just a fraction of the company's top line, but it could become a meaningful growth driver within a few years.
Elsewhere, Robinhood is pushing other initiatives that will also help reduce its reliance on its crypto business, including its prediction-market ventures. And besides that, Robinhood has become a fully fledged financial institution offering a range of services for investors, active traders, and people saving for retirement. Robinhood is another fintech giant that could become one of the banks of the future, and investors who go along for the ride may see outstanding long-term returns.
3. TransMedics Group
TransMedics Group has been transforming the organ transplant market. The company invented the Organ Care System (OCS), a portable device that mimics the physiology of the human body to keep organs in excellent condition before transplant, helping reduce waste and post-transplant complications. The company has been successful in its niche, but its latest financial results haven't met Wall Street's standards, particularly as expenses keep rising. In the first quarter, TransMedics' revenue increased by 21% year over year to $173.9 million. But the company's operating margin dropped to 7.6%, down from 19.1%. Also, TransMedics' adjusted EPS was $0.30, down from the $0.74 reported in the prior-year quarter.
That said, TransMedics' expenses are rising for good reasons. The company is expanding abroad while spending heavily to build its own logistics network. Elsewhere, TransMedics Group is also pouring money into R&D to get the OCS -- which is cleared for lungs, hearts, and livers -- approved for other organs, notably kidneys. TransMedics' business is doing just fine, and the company's spending is intentional. Provided it can continue dominating its niche of the healthcare market, TransMedics' shares could bounce back and perform well over the next decade.
Should you buy stock in SoFi Technologies right now?
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Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends TransMedics Group. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
