Hardly anything went right for growth stocks in 2022. In addition to a relative lack of interest now that sports and sports betting are back to normal, the Federal Reserve brought the age of near-zero interest rates to a close.
The value of any asset, stocks included, is equal to the sum of its future cash flows discounted to the present. Now that the Fed's target rate has risen more than 4% in less than a year, future cash flows are worth a whole lot less.
A higher interest rate environment will make it much harder to realize a satisfactory return from high-growth companies, especially those that are still losing money. All three of these growth stocks were severely beaten even though they belong to companies that already have positive cash flows. Here's why they could deliver market-beating gains for investors who buy them now and hold on for the long run.
InMode's (NASDAQ: INMD) stock price has fallen more than 63% from its all-time peak in 2021. Now you can scoop up shares of the medical device maker for just 17.3 times trailing earnings.
InMode develops and markets minimally invasive devices that can smooth out wrinkles and more. The company's relatively low stock market valuation is a little surprising because its share of the $63 billion market for cosmetic surgery and procedures is growing fast. In the first nine months of 2022, total revenue soared 30% year over year.
In October, InMode told investors to expect between $445 million and $450 million in total revenue for 2022. The low end of this guided range represents a 24% gain year over year and a 116% gain over the past two years. That's a lot faster than its stock market valuation suggests. Buying some shares now and holding on to them for the long run looks like a smart move to make right now.
Demand for premium furniture during the lockdown period of the pandemic pushed Lovesac (NASDAQ: LOVE) shares to all-time highs. Unfortunately, the stock has tumbled around 76% from the peak it reached back in 2021.
Lovesac markets high-end beanbag chairs that the company is named after. Its main product, though, is highly customizable sectional seating that it calls Sactionals. Sactionals that can expand, contract, or separate to suit the needs of growing families are so popular that third-quarter sales rose 15.5% year over year.
Lovesac's focus on developing lifelong customer relationships appears to be working. Four out of 10 transactions during the company's fiscal Q3 came from repeat customers.
Right now you can buy shares of Lovesac for just 10.8 times trailing earnings. At this low multiple, long-term investors will come out ahead over the long run even if the business stagnates into eternity.
Shares of PubMatic (NASDAQ: PUBM) are down a dissapointing 82% from the high-water mark they set in 2021. Heightened demand for digital ads during the lockdown period of the pandemic lifted the stock. Unfortunately, fear of a recession pulled the rug out from under it. Now you can scoop up the stock for just 16.7 times trailing earnings.
The folks at Alphabet and Meta Platforms might not want to admit it, but the world of digital advertising is going through a major transition. That's because these aging giants of the industry run the bidding process for ad inventory they own themselves.
PubMatic operates an independent sell-side platform that content creators and application developers hire to solicit the highest possible bids from ad buyers. PubMatic reported total Q3 revenue that rose 11% year over year. This was heaps better than Alphabet and Meta Platforms, both of which reported declining ad revenue over the same time frame.
In November, Pubmatic told investors to expect total revenue for 2022 to land between $257 million and $260 million. That's just a tiny sliver of the digital ad market that the company is clearly gaining a share of. With an operating model that content owners prefer, Pubmatic could continue gaining market share and deliver outsized gains for patient investors when it does.
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Cory Renauer has positions in InMode, Lovesac, and PubMatic. The Motley Fool has positions in and recommends InMode and PubMatic. The Motley Fool recommends Lovesac. 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.