All about Investing

2 Beaten-Down Growth Stocks Im Not Selling

Related categories

Its too early for investors in these companies to throw in the towel.

The past few months have been rough for many investors as marketwide issues sent equities tumbling down. Growth stocks have been hit particularly hard due to impending interest rate hikes in the U.S. Amid all this turmoil, it is essential not to succumb to panic selling.

Long-term investors should offload shares of companies they own only if they think the investment theses of these companies have changed. That's precisely why I am not (yet) parting ways with two of my holdings that have lagged the market recently: Teladoc (TDOC -4.70%) and Shopify (SHOP 1.65%).

Both companies' prospects remain intact, I believe, despite recent struggles in the stock market. Here's the rundown. 

TDOC data by YCharts

1. Teladoc 

Telehealth provides convenient ways of receiving some medical care -- such as basic consultations and referrals -- from the comfort of one's home. Thanks to the perks it offers, which include cost savings for patients, telehealth is likely here to stay. And as a leader in this industry, Teladoc is worth considering. The company benefits from a first-mover advantage and a strong brand awareness, especially following the events of the past couple of years.

Telehealth services became invaluable to consumers during the pandemic's peak, leading to a boom for Teladoc's business. The company continues to record strong financial results, too. In 2021, Teladoc's revenue grew by 86% compared to a very busy 2020 and came in at roughly $2 billion. The company's total visits for 2021 jumped by 38% year over year to 15.4 million.

One worry for Teladoc is the bottom line. The company continues to bleed red. In 2021, its net loss came in at $428.8 million, slightly better than the loss of $485.1 million reported in the previous fiscal year. Narrowing losses are a good sign for the company.

Teladoc does expect its revenue growth rates to decrease as well. In 2022, the company projects that its top line will come in between $2.55 billion and $2.65 billion, representing year-over-year growth between 25% and 30%. Teladoc see its top line growth continuing in this range through 2024 while growing its membership between 1% and 5% per year.

Image source: Getty Images.

It's within its current membership base that the company sees a market opportunity of $75 billion. That's because many of the services it provides are underpenetrated. Teladoc offers its clients many specialties, including mental healthcare and chronic healthcare. With growth in these offerings, Teladoc expects its revenue per member to continue increasing.

In the fourth quarter, average revenue per member in the U.S. came in at $2.49, 52% higher than the year-ago period. It's also worth noting that Teladoc has left some of its peers in the dust. One of the company's biggest competitors is American Well. In 2021, Amwell generated $252.8 million in revenue, a mere 3% higher than the year-ago period. Amwell's total visits for the year came in at 5.8 million, compared to 5.9 million for the previous year.

Teladoc is the more impressive of the two. Given the company's opportunity with its current membership base, not to mention the future the telehealth industry holds, I have no plans to sell my shares of this healthcare stock anytime soon.

2. Shopify

Shopify's business also experienced a significant boom during the worst of the pandemic. However, the company's shares dropped earlier this year after it reported its fourth quarter and full-year financial results, during which it announced an end to its coronavirus tailwind. Shopify could continue to see dark days for much of the year as investors adjust to slower top line growth rates.

But the company remains firmly on my good side. Over the past few years, Shopify's revenue has grown at a dizzying pace. The company's growth rates were bound to slow eventually, but they remain impressive. In 2021, Shopify's top line came in at $4.6 billion, representing a 57% year-over-year increase.

Analysts expect the tech giant's revenue to grow by about 38% per year, on average, over the next five years. For investors with an even longer timeframe (myself included), Shopify is a great bet because it should continue to ride the e-commerce wave. The industry is on an upward trajectory and, according to some estimates, it will expand at a compound annual growth rate of 14.7% through 2027.

Shopify offers its clients tools to become and stay relevant in this competitive environment. The tech juggernaut has done its best to become a one-stop shop for all the needs of merchants looking to open online storefronts, which is practically a necessity for businesses of all types in today's world. That's why Shopify has continued to attract customers. The company ended 2021 with 2,063,000 merchants on its platform.

By comparison, Shopify had 609,000 merchants as of Dec. 31, 2017. In other words, its customer base has more than tripled in the past four years. It won't stop there, and an expanding userbase will work wonders for Shopify's top and bottom lines for many years to come. Even with near-term headwinds, Shopify's overall prospects still look attractive, at least in my view. That's why I intend to hold on through these volatile times. 

Leave your comment