Growth stocks are falling out of favor with investors in 2022. Interest rates are rising rapidly, a trend that makes the present value of future cash flows worth less.
Despite what the market thinks of growth stocks, Apple (AAPL -3.86%), Roblox (RBLX -8.98%)and Airbnb (ABNB -5.88%) operate excellent businesses that seem unstoppable. Their shares are already trading at a discount after the sale. Investors should consider adding these three growth stocks if the stock market crash gains momentum. Here’s why.
Apple has decades of proven innovation
Apple’s business is centered on a unique ability to deliver innovative consumer technology products that generate billions in sales, beginning with the Mac computer, iPod, iPhone, iPad, Apple Watch, AirPods, etc. What is important for investors is that it has proven time and time again that it can innovate. It is therefore likely that it can maintain strong revenues and profitability in the long term.
From 2019 to 2021, Apple’s sales grew from $260 billion to $366 billion, while increasing earnings per share from $2.97 to $5.61. Apple trades at a price/earnings ratio of 22 and a price/free cash flow (P/FCF) multiple of 21.
Roblox is a metaverse pioneer
Roblox operates a platform where players can virtually interact with each other and the environment – in other words, a metaverse. It grew to have 53.1 million monthly active users in April, a 23% increase from the previous year. It’s free to join and use, for the most part. Roblox makes money by selling Robux, an in-game currency required for premium items.
Roblox chose to outsource these creations, a business model that has helped it generate strong cash flow over the past two years. Roblox flourished at the start of the pandemic, when millions of children – its most popular cohort – were spending more time at home. The economic reopening is creating headwinds for Roblox, which, in addition to the sale of growth stocks, has caused its stock to crater. Sold at a P/FCF multiple of 31, it’s almost the cheapest it’s ever been.
Airbnb gives travelers more options
Like Roblox, Airbnb operates an asset-light business model which has been helpful for its ability to generate free cash flow. Instead of creating, owning and operating the listings on its platform, Airbnb incentivizes others to list rentals. Airbnb takes a percentage of the booking value of each transaction on its website.
Additionally, by allowing hosts to list properties on the platform, Airbnb provides a unique set of properties not available in traditional hotels. This means that on Airbnb, travelers can book a room in an apartment or an entire house, depending on their needs for a particular stay. Revenue soared 77% for Airbnb in 2021, underscoring that it is growing in popularity with travelers.
Much like Roblox, Airbnb is trading near its lowest P/FCF multiple at 25.
Robust growth at an excellent price
Each of the three stocks mentioned above recorded excellent growth, indicating continued expansion in the years to come. Fortunately or unfortunately, depending on your perspective as a shareholder or potential investor, the sale of growth stocks is causing these companies to trade at substantial discounts to where they were just a few months ago.
They could get even better if another crash pushes prices even lower. Investors should put Apple, Roblox, and Airbnb on their watchlists and consider adding them to their portfolios should the market continue to decline.