Is it time to buy the 3 worst performing growth stocks of 2021?

These are perhaps the companies behind some of America’s most compelling growth stock stories. But actions of NovoCure (NASDAQ: NVCR), Pinterest (NYSE: PINS), and Axess Market (NASDAQ: MKTX) have been strangely underperforming this year, with prices falling by 46%, 39% and 38% (respectively) since the end of 2020. In perspective, from the first day of December, the Nasdaq composite (NASDAQINDEX: ^ IXIC) is up an astounding 23% year-to-date. It’s a huge disparity.

And yet savvy investors know that this kind of volatility can also mean opportunity. The bearish rhetoric may have done some damage in the short term, but the value is still ultimately reflected in the long term.

Image source: Getty Images.

The question is, do these three growth stocks actually have any buy value at their current prices?

Up-ended

Of the three companies in question, only one is really known: Pinterest. The unique social media platform allows users to collect digital clippings of topics of interest to them and organize them by topic. It has 444 million monthly users as of the end of September, but only recently has it stepped up monetization of that crowd by showing them more (and more targeted) ads.

However, the market loved the timing of the stepped-up effort, as it largely coincided with last year’s lockdowns that left people stranded at home, bored, with little else to do. . In total, Pinterest shares soared more than 260% last year. Problem was, the push was a little too strong, too fast, inviting profit-taking for most of this year, as investors began to realize that this online social gathering place still had work to do. to do.

The story of MarketAxess is similar, although it is rooted in a different reason. While online stock trading has been mainstreamed for a couple decades now, online bond trading is a different story. The bond market is not as transparent as the stock market, and information about bonds – individual and as a whole – is scarce. MarketAxess solves this problem by providing better pricing information and overview of the bond market to over 1,800 institutional clients, many of whom serve their own retail clients.

The fall in interest rates over the past year, along with sheer market volatility, has produced a sharp increase in demand for MarketAxess’ services, along with a corresponding increase in demand for the stock. As the bond trading frenzy eventually subsided, demand for the company’s shares also waned.

As for biotech company NovoCure, it’s yet another name that has performed a little too well for its own good in 2020, setting up a 2021 pullback.

Surprisingly, last year’s gain of over 100% for shares of NovoCure was not the result of the company’s work on a COVID-19 vaccine. NovoCure has stayed true to its cancer-fighting roots, and investors celebrated the progress made on this front. He also continued to increase his income while reducing his losses.

Last year’s $ 494 million revenue was 40% higher than 2019 revenue, and NovoCure even went from an annual loss of $ 7.2 million to a profit of operating nearly $ 20 million. These numbers continue a hot trend that is also expected to persist into next year, although the relative pace of growth begins to slow due to year-over-year comparisons. Sadly, the market is starting to notice how groundless this company still is and how expensive NovoCure shares are relative to its projected results.

Always on the right track

Given the extreme optimism of the past year from all three of these names, this year’s marked weakness makes sense. What has been obscured, however, is that nothing has really changed in these growth stories. They are all still so convincing.

NovoCure’s current portfolio is already strong, but with drugs for lung cancer, ovarian cancer, pancreatic cancer, and treatments for brain metastases, all built around the same proven biotechnology currently in phase trials. 3 (or already sent to the U.S. Food and Drug Administration for approval), there’s a basis for more of the same kind of growth we’ve seen in recent times.

The expected revenue growth of less than 9% next year isn’t exactly exciting, but this company has proven to be a very, very reliable producer even though it is used to being below estimates. of profits. That might put it in perspective: Although they believe this is essentially a simple “take,” the analyst community still posts a consensus price target of nearly $ 145 per share. That’s 55% better than the share’s current value.

MarketAxess is not going to replicate the heroic 2020 numbers in 2021. Revenue is set to grow a modest 3% this year, but actual profits are likely to decline as much as 10%. Beyond those roaring few years, however, growing interest in bonds should restore this business to pre-pandemic growth.

Look for 12% sales growth next year to take profits to a record $ 7.90 per share. The Federal Reserve’s outlook for six- to eight-quarter point hikes in the fed funds rate through 2024 could also easily spark more interest in bonds, as their yields will rise in line with the Fed’s base rate.

As for Pinterest, of course, it is further refining its business model. It’s a great model, however, and like the web’s more familiar social media platforms like Meta-platforms‘Facebook and Twitter continue to move towards the middle of the crosshairs of the public and regulators, more laid-back venues like Pinterest are positioned to become destinations of choice. This idea is underscored by the expected sales growth of 26% for next year and 23% in corresponding profits.

Pinterest’s monetization efforts are really starting to pay off, and new revenue-generating widgets continue to materialize. For example, in April, Pinterest unveiled the Creator Code to help users better manage their pins page followers, and in July, it launched a war for members to monetize the pages of interest they want. share with others.

Trade them like the growth stocks they are

Investors familiar with these three stocks are likely to know that they are also expensive here despite this year’s setbacks. Based on generally accepted accounting principles (GAAP), Novocure is still in the red, in fact.

Don’t dwell too much on their ratings, however. Rightly or wrongly, these stocks’ track records and the growth rates of their corresponding companies are more than capable of supporting foamy valuations that might not be sustainable for slower growing stocks. This momentum usually means excessive volatility in either direction, but this year’s volatility is now translating into good buying opportunities for all three stocks.

10 stocks we like better than Pinterest

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Randi Zuckerberg, former director of market development and Facebook spokesperson and sister of Meta Platforms CEO Mark Zuckerberg, is a member of the board of directors of The Motley Fool. James Brumley has no position in the stocks mentioned. The Motley Fool owns shares and recommends MarketAxess Holdings, Meta Platforms, Inc., Novocure, Pinterest and Twitter. The Motley Fool has a disclosure policy.

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Aldrich Stanley

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