The benchmark S&P500 The index is already up 15% this year, but most of the gains can be attributed to the performance of a small group of trillion-dollar titans like Nvidia, MicrosoftAnd Apple.
In fact, many stocks at the smaller end of the market are actually down this year. This also applies to software suppliers such as Werkiva (NYSE: WK) And Bill.com (NYSE: BILL), which have seen lackluster stock performance since the tech frenzy ended in 2021. These two stocks are now trading 55% and 85% below their all-time highs, respectively. Despite the disappointing stock performance, both companies have delivered consistent revenue growth since then, and at current levels they are starting to look like very attractive investments.
Here’s why it might be time to buy the dip in these two growth stocks.
1. Workiva
Modern organizations use dozens or even hundreds of digital applications to manage their daily activities. Workiva has designed a unique software platform that allows them to merge data from those apps onto a single dashboard, allowing managers to create a single source of truth. It makes reporting much easier, whether for regulators like the Securities and Exchange Commission or for the management team.
Workiva also expanded into ESG (environmental, social and governance) reporting to help organizations comply with growing regulations requiring them to track things like their environmental footprint, workplace diversity and social impact. Workiva’s ESG platform allows companies to design frameworks, find the right data and build reports. It could be a big source of demand for the company in the long run as governments try to bring more organizations under ESG reporting rules.
Workiva had 6,074 customers in the recent first quarter of 2024 (ended March 31), up 5.5% from the same period a year ago. But 1,696 of those customers spent at least $100,000 annually, and that cohort grew 24%. Additionally, 332 customers spent $300,000 or more per year, an increase of 34%. Simply put, Workiva sees the fastest growth coming from its highest-spending customers, indicating the importance of its software in larger, more complex organizations.
That contributes to an acceleration of the company’s revenue growth. Workiva brought in $175.7 million in the first quarter, up 17% year over year. That growth is accelerating quarter after quarter and also compared to the first quarter of 2023. The company achieved that result while to cut costs, reducing net losses by 74% to just $11.7 million. Companies normally see it to delay growth as they cut back, so this implies that Workiva is experiencing a lot of organic demand for its products.
Workiva shares peaked around $160 in 2021, and have fallen 55% since then. But the company continues to grow its revenue consistently, so the shares now trade at a price-to-sales ratio (P/S) of just 5.9, which is the cheapest level in four years. Considering that revenue growth is now accelerating and the company is on the cusp of profitability, that sounds like a good deal for investors.
2. Bill.com
Bill.com offers a portfolio of software products designed to help small and medium-sized businesses streamline their accounts receivable, accounts payable and expense management processes. The company generates most of its revenue from transaction fees when customers pay through its platform, and also charges subscription fees for using its software.
Bill.com’s flagship product is a cloud-based digital inbox where businesses can upload and receive invoices. From there, they can pay with one click, and every transaction is automatically recorded in the books thanks to integrations with most leading accounting software providers. Bill.com’s subsidiary Invoice2go handles the other side of the story: it allows companies to create invoices, send them to customers and track incoming payments.
Bill.com serves 464,900 customers across its products, but that’s just a fraction of its addressable market, which includes 70 million businesses worldwide.
The company generated total revenue of $323 million in the third quarter of fiscal 2024 (ended March 31), which exceeded management’s forecast of $304 million and was up 19% from the same period a year ago. Sales growth has slowed in recent years as the company has abandoned its “growth at all costs” strategy and focused on achieving profitability.
So far, the switch has proven to be a success. Bill.com generated net income of $31.8 million in the third quarter, which was a big change from net income of $31.1 million. loss it was delivered in the period of one year ago.
Bill.com shares peaked at nearly $335 in 2021, and have fallen 85% since then. But like Workiva, this company continues to grow nicely, making its current P/S ratio of 4.1 the cheapest in its history. Since Bill.com has barely scratched the surface of its global addressable market, it could be a great buy for investors who can hold the stock for the long term.
Should you invest €1,000 in Workiva now?
Before purchasing shares in Workiva, please consider the following:
The Motley Fool stock advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and Workiva wasn’t one of them. The ten stocks that survived the cut could deliver monster returns in the coming years.
Think about when Nvidia made this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $830,777!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates, and two new stock picks per month. The Stock Advisor is on duty more than quadrupled the return of the S&P 500 since 2002*.
View the 10 stocks »
*Stock Advisor returns June 10, 2024
Anthony Di Pizio has no positions in the stocks mentioned. The Motley Fool holds positions in and recommends Apple, Bill Holdings, Microsoft, Nvidia and Workiva. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
2 Glorious Growth Stocks Down 55% and 85% to Buy on the Dip was originally published by The Motley Fool
