Summer is almost here, and the stock market has done well so far in 2019. But that doesn’t mean everyone’s confident about the future. Between trade war fears, a slowing global economy, and a host of company-specific risks, you can’t afford to invest in just any company.
With that in mind, we asked some of The Motley Fool’s leading contributors to suggest what stocks they like as spring gives way to warmer weather and school vacation. Below, you’ll learn why they think Docusign (NASDAQ:DOCU), Green Dot (NYSE:GDOT), Twilio (NYSE:TWLO), Twitter (NYSE:TWTR), and Teladoc Health (NYSE:TDOC) are their favorites.
Disrupting an antiquated process
Brian Feroldi (DocuSign): The vast majority of business agreements made today are still completed using pen and paper. That’s an amazing fact given that gathering signatures the old-fashioned way is slow, inefficient, and error-prone. DocuSign is on a mission to bring such agreements into the 21st century.
DocuSign sells cloud-based software that enables businesses to digitally prepare, execute, and act on agreements. The company’s solution can be used to automate more than 70 types of agreements that could benefit from moving online. This includes things like vendor contracts, invoices, nondisclosure agreements, sales arrangements, legal contracts, and more.
There are numerous benefits to the adoption of e-signature arrangements. Using DocuSign’s solutions greatly speeds up the process and provides a level of accuracy and transparency that traditional methods simply cannot, and the combination leads to lower costs. These benefits make it easy to understand why more than 477,000 businesses currently count themselves as paying customers.
DocuSign continues to produce numbers that prove that e-signatures are catching on with businesses of all sizes. Last quarter, the company’s revenue grew 34% to just shy of $200 million. The company’s gross margin clocked in at 74%, which is very high. The combination allowed the company to crank out free cash flow and produce adjusted profits.
However, is this level of growth sustainable? I believe the answer is yes. Management is currently guiding for revenue to land between $910 million and $915 million for the full year, the midpoint of which projects growth of about 30%. What’s more, there’s ample reason to believe that this is still just the tip of the iceberg. Management believes its current total addressable market is around $25 billion, so there’s plenty of runway for growth ahead of this business.
One factor that should keep DocuSign’s growth rate high is that it has done a great job building a product ecosystem that includes a who’s-who list of partners. The company’s products are directly connected to software that is built by Microsoft, Oracle, SAP, Apple, and more. More recently, the company struck up a new deal with Salesforce. These partnerships not only provide DocuSign with a strong competitive advantage, but they also greatly increase the company’s commercial reach.
All told, there’s a lot to like about DocuSign’s business for the long term. While value investors might scoff at DocuSign’s high valuation — shares are trading for about 13.5 times sales and 148 times next year’s earnings estimates — I think DocuSign is such a high-quality business that the premium is worth paying.
A big discount for long-minded investors
Matt Frankel, CFP (Green Dot): Green Dot is one of my favorite fintech stocks, but it has taken a beating recently. The non-traditional banking company was down by about 20% in 2019 before reporting its first-quarter earnings, and some surprising revelations in the most recent earnings report caused the stock to drop even further. Investors can now get shares of Green Dot at their lowest price in almost two years.
I’ll get to the reasons for the drop, but first, here’s a bit about what Green Dot does, if you aren’t familiar. The company has two major business segments. It offers its own banking products, most of which are designed for the underbanked portion of the population. These include things like prepaid cards and the GoBank checking account.
In addition, Green Dot also offers a banking-as-a-service, or BaaS, platform. In simple terms, many businesses would be well-served by offering some sort of banking product to their customers — say, a branded debit card, a person-to-person payment app, or a quick way to pay people. However, it’s often not desirable from a regulatory standpoint for these companies to actually become banks themselves, so Green Dot essentially uses their infrastructure to do it. To name one example, Green Dot’s technology is behind Apple‘s Apple Cash person-to-person payment platform.
Green Dot’s BaaS business has been extremely successful in recent years. In addition to Apple, Green Dot’s BaaS customers include Intuit, Uber, Walmart, and Stash. So, why is the stock performing so poorly?
There were a few things in the company’s recent earnings report that frightened investors. For one thing, Green Dot missed revenue estimates, and both revenue and earnings declined from a year ago. And more significantly, Green Dot announced an unexpected $60 million investment increase in its BaaS platform, which caused the company to significantly lower its guidance for the rest of the year. Green Dot doesn’t expect to see the effects of its investment until 2020 and beyond.
To be fair, this does create a lot of near-term uncertainty in terms of execution risk. It also represents a significant pivot, with much more of the company’s focus shifting to BaaS than its own products.
However, this could be a major positive catalyst for patient investors. Green Dot estimates that its $60 million investment could result in a million new accounts and $200 million to $300 million in revenue over time. So, while there’s definitely more uncertainty, investors who are in it for the long haul may want to take a closer look at Green Dot at these depressed levels.
A stock any app user could appreciate
Dan Caplinger (Twilio): The mobile revolution has created a large number of new investment opportunities in the technology space, and there’s been a host of upstart companies that have managed to carve out lucrative niches even against much larger competitors. Twilio is just such a company, with its focus on giving app developers the tools they need to make their apps as friendly to users and easy to navigate as possible.
Twilio specializes in…
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