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2 Bargain Growth Stocks You Can Confidently Buy Right Now

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Investors might want to consider buying the dip on these promising companies.

2022 has been hard for all investors, specifically long-term investors who own tech stocks. The S&P 500 has dropped 12.5% year-to-date, and the tech-heavy Nasdaq Composite index has slid 18% in the same period. Portfolios of those who bought individual companies have likely been slashed even harder, with plenty of high-growth names down more than 30% in 2022 alone. 

Sea Limited (SE -0.24%) and PubMatic (PUBM -4.50%) both fit this bill. Sea Limited has lost nearly 60% of its value, while PubMatic has dropped almost 40% in just the beginning months of 2022, leaving many investors worried about what the rest of the year has to hold for the stock market. However, if you are measuring your time horizon in decades, rather than weeks or months, drops in these two companies are potential buying opportunities. Valuations are now cheap, despite the businesses performing well, which is why you might want to load up on shares right now. 

Image source: Getty Images.

1. Sea Limited

After falling like a rock this year, Sea Limited now trades at just 4.9 times sales, a valuation it has only had once since going public in 2017. With such a low sticker price, investors might believe that this e-commerce and gaming giant would be reporting slow growth -- but in reality it grew total revenue by 106% year-over-year in Q4 2021 to $3.2 billion.

Shopee, the company's e-commerce platform, has been executing well. It was the most popular shopping app in Southeast Asia and the second-most popular shopping app in the world in terms of monthly active users in 2021, demonstrating its growing popularity globally. The company took over 2 billion orders in Q4, which grew 90% year-over-year, showing off its adoption.

And the good news didn't stop there. SeaMoney -- the company's fintech arm, which offers mobile wallet, credit, and payment processing services to Southeast Asia -- blew up (in a good way) in Q4. SeaMoney's revenue grew 711% year-over-year in Q4 to $197.5 million, despite being created just eight years ago. SeaMoney's quarterly revenue is still small compared to Shopee and Sea's gaming business, but its growth is nothing to shake a stick at.

Despite all of this strength, the company does have concerns. Sea Limited's hit mobile video game and cash cow Free Fire has been one of the most popular battle royal games on the market the past few years, but the hype seems to be wearing off. 

Additionally, the video game was banned by the Indian government, which didn't help the company's worrisome guidance. Sea Limited estimates that 2022 bookings for its gaming business -- Garena -- will fall 35% year-over-year to $3 billion. This is concerning for multiple reasons. Garena is Sea Limited's second-biggest revenue driver behind Shopee, and it's also the only business segment near profitability. Adjusted EBITDA for Garena in 2021 was $2.8 billion, compared to the e-commerce adjusted EBITDA loss of $2.6 billion.

Garena's slowing growth could pose a threat to the company's ability to reinvest in its growth, but this is expected to become less of a concern over time. Management noted that Shopee is expected to become adjusted-EBITDA profitable -- excluding headquarters' expenses -- in Southeast Asia and Taiwan by the year's end, meaning that the reliance on Garena's profitability will begin to diminish. Considering the company's impressive growth and improving profitability, it might be an opportune time to add a few shares at this historically low price.

2. PubMatic

The advertising technology platform -- which focuses on getting publishers the best value for their ad space -- continued to see rapid growth. In Q4 2021, the company grew its revenue 34% year-over-year to $76 million. Shares slumped due to underwhelming guidance of 25% revenue growth in 2022, but this is still higher than the industry's projected growth of 17% over the same period, indicating PubMatic will take market share.

When comparing PubMatic's organic revenue growth to that of its main competitor Magnite (MGNI -2.48%), it is clear why the former could increase its market share. Magnite grew its Q4 revenue by just 10% year-over-year on a pro forma basis, which adds in the acquisitions made over the past year to the year-ago results. Even this does not show Magnite's true organic growth, considering the acquisitions it made over the past year presumably boosted its pro forma growth. With this in mind, Magnite's core business growth was likely lower than 10% in Q4.

What is impressive about PubMatic is that, despite being such a small company, it is extremely profitable. The company's net income margins in 2021 reached 25%. Because of this amazing profitability, shares trade at 20.5 times earnings, a reasonable valuation for a company growing as fast as PubMatic. This is much lower than Magnite, which trades at a staggering 897 times earnings. With stronger organic growth at a valuation lower than that of its main competitor, PubMatic looks like one of the best deals in the industry right now. 

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