The stock market was on a bumpy ride in September. At one point on Monday, the Dow Jones Industrial Index fell more than 900 points, but on Friday morning it traded more than 300 points higher than at the start of the week. This volatility makes many traders nervous, but it offers opportunistic investors a chance to open new positions at better valuations.
We asked three Motley Fool contributors to tell us about the stocks they bought during this hectic month that they think could be big winners. Their choices: Zynga (NASDAQ: ZNGA), UiPath (NYSE: PATH), and OppFi (NYSE: OPFI).
Game over? Not even close
Keith Noonan (Zynga): When turmoil hit the market earlier this month, I only attacked one title: mobile gaming leader Zynga. For investors looking to gain exposure to the growing video game industry, this may be a great time to buy the stock, especially since the rally in its share price has been weaker than that. many other leaders in the technology and entertainment industries.
With the company trading at around 21 times this year’s expected earnings and 3 times expected sales, Zynga is a promising growth stock that sits in value territory. And the long-term outlook is strong despite the recent drop in the stock price.
The video game publisher’s share price is now down about 38% from its 52-week high. The decline is due to management’s downward revision of this year’s estimated bookings, as well as concerns that changes related to advertising Apple brings to its mobile ecosystem will close some growth opportunities for Zynga. While the diminishing potential of the nascent in-game advertising market may be a significant setback for the company, the likely reason it lowered its bookings target for this year by 3% was its decision to delay the launch slightly. release of an upcoming game, and shouldn’t be taken as a signal of a significant business weakness. It is still a business that is built to win the future.
Through internal development initiatives and a surge of massive acquisitions over the past decade, Zynga has built an impressive stable of development studios. It became the # 1 mobile game publisher in the United States by revenue last year, and has shown it can sustain popular franchise lifecycles and increase profits through upgrades. regular content day.
In the video game industry, it often takes just one new game to boost a business’s performance and cause stocks to skyrocket. Zynga has powerful development and marketing resources, and its stocks are trading at depressed levels, which is why it’s currently my top game pick and one of my top picks overall.
Leading software company falls hard after IPO
Nicolas rossolillo (UiPath): I’ve been hesitant to pick up shares of UiPath since its IPO this spring, in part because of its sky-high valuation, but mostly because I like to see a quarterly report or two before buying a newly listed stock. The automation software specialist has now delivered these financial reports, and with the stock down 23% from when it started, I’ve started picking up a few stocks.
Just to be clear, this is not value action even after this fall. Stocks are currently trading at over 40 times the ARR (annualized recurring income) expected for the full year. UiPath is not yet profitable either – although this is by design, as it spends all of its excess cash and then some of it on sales and new software development. But it’s a fast-growing company with $ 1.9 billion in cash and cash equivalents on its balance sheet. Its forecast for full-year ARR implies a growth of 47% compared to last year.
So why did the stock drop? Although UiPath management improved its growth outlook in each of its first two quarterly reports, a 47% annual growth in RAR would require a slowdown from the 60% growth recorded in the second quarter. While still not to be sneezed at, UiPath’s valuation peaked earlier this year. Now, a more pragmatic view is taking hold as investors adjust to the idea that as the impacts of the pandemic on businesses abate, UiPath’s rate of expansion will settle to a low. slightly more pedestrian pace.
Nonetheless, UiPath has huge potential as it helps businesses across a range of industries become more efficient – from banking and finance to healthcare, energy and utilities. Its software robots, powered by machine learning, help automate processes, freeing up human talent time. Given the ongoing labor shortages, the appeal of UiPath’s software technology to a growing list of companies is understandable. Additionally, UiPath customers tend to quickly increase their spending once they get started. Its net dollar retention rate was 144% last quarter, so its average customer is now spending 44% more with the business than he did a year ago.
With this incredible momentum in mind, I made my first small purchase of UiPath shares this month, and I plan to increase my position over time if the growth story continues to play out favorably. .
A fintech at a reasonable valuation?
Bram Berkowitz (OpFi): It’s hard to find a promising fintech these days at a reasonable valuation, but OppFi (NYSE: OPFI), which went public through a PSPC merger in late 2020, is one of the few.
OppFi is trying to revolutionize the subprime lending space, which caters to riskier borrowers (typically with FICO scores below 600) who don’t have access to more traditional sources of credit. Its main product, the OppLoan, is an installment loan. On average, its clients borrow about $ 1,500 for an average of 11 months – funds they use to deal with a range of financial emergencies.
But this is not your regular subprime lender. The OppLoan is just the beginning of what OppFi would like to offer its underserved customers. She is preparing to roll out many other products such as OppU, an educational program that reinforces good credit behaviors and teaches financial literacy. It also aims to enable successful OppLoan customers to access other products, such as a credit card with a monthly spending limit of $ 1,500. He is also exploring a more securitized loan product called SalaryTap, which would allow clients to repay their loans by setting up direct payments from their paychecks, in return for which they would get those loans at lower interest rates. .
OppFi doesn’t just seek to serve every customer once. He aims to build relationships with them and perhaps help his subprime borrowers become near-prime borrowers. These longer-term relationships would also provide OppFi with more repayment data, which it could use to improve its credit underwriting models. Loyal customers are also much easier to subscribe, and OppFi has already demonstrated its ability to retain customers. He has a Net Promoter Score of 85, which shows his clients are very likely to recommend doing business with the company.
While the fact that OppFi operates in the subprime lending space may put some investors off – and this presents some regulatory risks – I really like the history of the company and believe it can differentiate itself from its peers. predators. And it has been profitable for six years, which is rare for a young fintech. In the second quarter, it generated roughly $ 18 million in profit on adjusted revenue of over $ 78 million. Management expects annual revenues of $ 875 million in 2023, and the September liquidation lowered OppFi’s market capitalization to a paltry $ 867 million.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.