2 “STAY AT HOME” Tech Stocks to Buy on Dips

2 “STAY AT HOME” Tech Stocks to Buy on Dips

Posted On October 7, 2020 2:03 pm

We’ve seen a strong bounce off the lows for the major market averages over the past two weeks, with the Nasdaq-100 (QQQ) leading the charge, up 7% in the past eight trading days.

While the news of President Trump contracting COVID-19 briefly derailed the market last week, we’ve seen minimal downside follow-through. This shouldn’t be surprising as Presidential shocks have rarely done much lasting damage to the market, and in most cases have been single-day shocks that were quickly bought up by the bulls.

The jury is still out on whether we’ll see a re-test of the 3200 levels on the S&P-500 (SPY), but if we do, it’s essential to keep a shopping list ready as the best time to buy growth stocks is on weakness. In this article, we’ll discuss two names that have superior fundamentals that should be at the top of investor’s watchlists if this correction does continue:

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(Source: TC2000.com)

While the stay-at-home stocks have received the most attention from COVID-19 with names like Zoom (ZM) and Peloton (PTON) up over 100% year-to-date, there are less obvious names that are also managing to grow earnings and sales at a rapid pace. Two software companies that have also shrugged off the recessionary environment and put up incredible growth are Five9 (FIVN) and Bill.com (BILL), two lesser-known mid-cap companies with industry-leading sales growth.

For those unfamiliar, Five9 provides cloud contact software and has seen a surge in demand with many call centers at lower capacity during COVID-19, and Bill.com offers cloud-based software to automate monotonous back-office financial operations for small and mid-sized businesses. During their most recent quarters, both companies managed to grow sales by over 25% year-over-year, which currently places these two tech names among the top 200 growth stocks in the market. Typically, the top 200 growth stocks are a good place to go fishing for new ideas: Let’s take a closer look at each company’s growth below:

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(Source: YCharts.com, Author’s Chart)

Beginning with Bill.com, the company is relatively new, so it does not yet have positive annual earnings per share (EPS).

However, the company’s net losses continue to narrow as it increases its customer base, with the company finishing fiscal Q4 2020 with 98,000 customers, translating to 28% growth year-over-year. It’s worth noting that this growth is occurring at a time when some industries are seeing unprecedented headwinds, so this is extremely impressive.

If we look ahead to FY2022 estimates, the company is expected to post net losses per share of $0.21, with preliminary FY2023 forecasts showing that Bill.com could post its first profit in FY2023.

This might not be all that exciting for investors used to companies with steady double-digit earnings growth like most of the FAANGs, but the below chart of sales growth shows that strong earnings growth should not be far away as sales continue to ramp up.

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(Source: YCharts.com, Author’s Chart)

As we can see from the chart above, Bill.com reported quarterly revenue of $42.1 million in Q4 2020, a new record driven by an increased customer count and stable margins.

It’s worth noting that the company continues to enjoy operating leverage as revenues grow, with sales & marketing expenses coming in at just 28% of revenue in Q4, an improvement of 400 basis points year-over-year (32% vs. 28%). If we look to ahead of Q1 2021 and Q2 2021, revenue is expected to continue to grow at a double-digit pace, even though it’s lapping strong double-digit growth. Based on estimates of $43.4 million in Q1 2021, revenue should grow by

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