2 stocks investors are buying by hand amid the market crisis
The S&P 500 became more volatile in September due to several factors, including issues in China involving the country’s second-largest real estate developer, an increase in new coronavirus cases due to the Delta variant, and a history of market underperformance scholarship holder in September.
However, some stocks defied the broader market downside and climbed impressively in September. Ambarella (NASDAQ: AMBA) and Match group (NASDAQ: MTCH) are two of those stocks that have skyrocketed this month.
AMBA data by YCharts
Let’s take a look at the reasons why investors buy shares of these two stocks despite the massive sell-off.
1. Ambarella’s meteoric growth is here to stay
Ambarella on August 31 posted formidable results for the second quarter of fiscal 2022 that exceeded Wall Street expectations, and which appear to have supercharged the stock in September. The company’s second-quarter revenue jumped 58% year-over-year to $ 79.3 million, which was better than forecast and topped the consensus estimate of 75.7 millions of dollars. Ambarella’s adjusted earnings were $ 0.35 per share, significantly exceeding the prior year’s figure of $ 0.06 per share and analysts’ estimate of $ 0.25 per share.
Ambarella’s tremendous growth is driven by strong demand for its computer vision chips, which are used in security cameras and Internet of Things-enabled automotive cameras, two areas that are growing rapidly.
Image source: Getty Images.
Contributing to 60% of total revenue for fiscal 2021, the IoT-enabled camera is currently making a big difference for the business. And this market appears built for long-term growth, recording a compound annual growth rate of nearly 13% for the next five years, according to IDC. The firm estimates that the CCTV camera market could reach $ 49 billion in revenue by 2025.
As a result, the demand for Ambarella chips that power such cameras is expected to continue to grow, especially as surveillance cameras are increasingly advanced. Ambarella estimates that the global security camera market had an installed base of 900 million units in 2020. However, around 250 million of these were first-generation analog cameras, which are experiencing declining demand. Ambarella does not provide chips for these first generation cameras, which puts it in a strong position to take advantage of the current upgrade cycle.
The second generation network cameras which represent the majority of the security camera market expand Ambarella’s addressable market with higher content. Additionally, third-generation artificial intelligence-based security cameras are gaining traction – and that’s good news for Ambarella, as they contain twice as many chips as second-generation cameras.
Ambarella also points out that security cameras are upgraded every four to six years. This means the business is expected to see an increase in content per unit as customers move to second or third generation cameras.
However, it is in the automotive sector that Ambarella could make a lot of money in the long run. This segment accounted for 15-20% of the chipmaker’s revenue in fiscal 2021, but it is expected to present a larger revenue opportunity for the company in the future that may overtake the IoT camera market. This is not surprising, as the number of cameras in vehicles has increased at a steady rate.
Ambarella points out that every new vehicle made last year had an average of 1.5 cameras. Future vehicles will likely come out with a double-digit camera count to support autonomous driving features. As a result, Ambarella sees an addressable opportunity worth nearly $ 5 billion in the automotive market through 2025, which is significantly higher than the $ 1.4 billion opportunity the company saw. in this space in 2019.
Ambarella has generated $ 267 million in revenue over the past 12 months, so the automotive market alone could be a huge growth engine going forward. Analysts expect Ambarella’s profits to grow at an annual rate of 82% over the next five years, which doesn’t seem surprising given the pace at which its end markets are growing.
Investors don’t want to miss out on this exceptional growth, which is probably why they took on this tech action at a time when the broader market was under pressure.
Image source: Getty Images.
2. Correspondence group
The online dating space is expected to generate more than $ 10 billion in revenue by 2026, according to a third-party estimate. Match Group, which generated just under $ 2.7 billion in revenue last year, is one of the best ways to tap into this market given its dominant position. In terms of revenue, it owns six of the top 10 dating apps in the US, with Tinder alone accounting for 40% of the US revenue share.
The dominance of Match Group has resulted in impressive financial growth. The company’s second-quarter revenue increased 27% year-over-year to $ 708 million, thanks to a 15% increase in the number of paying subscribers to 15 million. Tinder made up the majority of Match’s user base in the last quarter with 9.6 million paying subscribers. Tinder’s direct revenue grew 26% year-over-year in the quarter to $ 399 million.
More importantly, revenues from Match’s other online dating properties increased 28% from the quarter last year. Other brands saw a 12% increase in the number of paying subscribers, while revenue per paying subscriber was up 14% from the previous year period. A closer look at Match’s business indicates that it is experiencing robust growth thanks to its new online dating properties, as established brands have regained their mojo.
Match’s revenue from its established brands increased 13% year-over-year to $ 192 million in the second quarter. For comparison, segment revenue was down 2% year-over-year over the prior year period. At the same time, direct revenue growth for new brands accelerated to 71% year-on-year in the last quarter from 65% in the previous year quarter. In addition, the management of Match points out that the “willingness to pay has improved considerably” at Tinder.
These favorable winds are the reason Match is on track to maintain robust growth. The company is forecasting 23-26% year-over-year revenue growth this quarter, with a range of $ 790 million to $ 805 million. And the company’s emerging brands are expected to more than double in the second half of 2021.
Analysts expect the company’s profits to grow at an annual rate of nearly 30% over the next five years. Unsurprisingly, Match Group shares have soared amid a market correction despite its rich valuation.
The stock is trading at 89 times rolling earnings and 43 times forward earnings, while its price-to-sell ratio of 17 is significantly higher than the 2020 average of 6.6. However, Match’s rapid growth rate and huge opportunities ahead are supporting these rich multiples, which is why investors looking for growth stock bought its stocks by hand.
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Harsh Chauhan has no position in the mentioned stocks. The Motley Fool owns shares and recommends Match Group. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.