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Which Pandemic Winners Are Still Worth Investors' Attention?

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·5 min read
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Stay-at-home orders were widespread as the outside world quickly shut down when COVID-19 stormed the world by surprise. While many stocks suffered from the pandemic’s initial economic impact, a handful actually benefitted.

To say the least, it was an interesting time to be an investor, and those who flocked to the stay-at-home stocks were rewarded handsomely with considerable gains – undoubtedly limiting drawdowns in other positions.

In 2022, those high-flying days for these stocks have come to an abrupt halt, with the majority witnessing double-digit valuation slashes. Many market participants have undoubtedly written these stocks off after the carnage.

Three of these pandemic winners – Peloton Interactive PTON, Shopify SHOP, and Teladoc Health TDOC – have witnessed their shares fall quite extensively throughout 2022. The chart below illustrates the year-to-date performance of all three companies while blending in the S&P 500 as a benchmark.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

As we can see, it’s been quite the fall from glory for all three of these companies. However, it does raise a valid question: are they still worth buying after valuations have been taken down a level? Let’s take a closer look to find out.

Shopify

Shopify SHOP allows merchants to build and customize an online store and sell in multiple places, including web, mobile, in-person, brick-and-mortar locations, and pop-up shops across various channels from social media to online marketplaces.

Shopify’s forward price-to-sales ratio has come all the way down to 7.5X, an absolute fraction of 2020 highs of 58.2X and nowhere near the median of 22.7X over the last five years. However, the value does represent a steep 96% premium relative to the S&P 500’s forward price-to-sales ratio of 4.1X.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Shopify’s quarterly results have been mixed over the last four quarters, but the company has still acquired a positive average EPS surprise of a respectable 5%. However, in its latest quarterly release, SHOP missed bottom line estimates by a sizable 75%.

Additionally, earnings are expected to grow 33% over the next three to five years.

SHOP continues to rake in cash, with the FY22 revenue estimate of $5.9 billion displaying a sizable 28% expansion in the top line year-over-year. Furthermore, for FY23, revenue is expected to climb an additional 31%, up to $7.8 billion.

Teladoc Health

Teladoc Health TDOC can diagnose and treat most non-emergency conditions such as flu, seasonal allergies, upper respiratory infections, and more by phone or video conveniently in the comfort of your own home. During the initial phases of the pandemic, it’s easy to see why Teladoc benefitted massively.

Looking at valuation, Teladoc’s forward price-to-sales ratio has fallen to 2.3X, nowhere near its overvalued high of 33.9X in 2020 and nicely below the median of 10.2X over the last five years. Additionally, the value represents a deep 44% discount relative to the S&P 500’s forward price-to-sales ratio.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

The company has reported better-than-expected results over its last four quarters, tallying an average EPS surprise in the double-digits of 20% and exceeding EPS estimates by a notable 15% in its latest quarter.

Additionally, earnings are forecasted to grow by 27% over the next three-to-five years.

The top-line remains strong, with FY22 revenue forecasts sitting at $2.4 billion – a 19% year-over-year increase. For FY23, the top line is forecasted to add another 20%, with revenue estimates sitting at $2.9 billion.

Peloton Interactive

Peloton Interactive PTON is an exercise equipment and media company based in New York City. The company’s primary products are internet-connected stationary bicycles and treadmills that enable monthly subscribers to participate in classes via streaming media remotely.

Pivoting to valuation, Peloton’s current forward price-to-sales ratio sits at 1.2X, well below 2021 highs of 12.6X and a fraction of its median value of 6.3X since the company went public in September 2019. Furthermore, the value represents a deep 68% discount relative to the S&P 500’s forward price-to-sales ratio.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Peloton’s quarterly reports have been less than ideal over the last four quarters, penciling in an average EPS surprise in the negative of -44% and missing bottom-line expectations by a notable 16% in its latest quarter.

Looking forward, PTON’s bottom line is forecasted to expand by 28% over the next three to five years.

The top line displays some weakness, with FY22 sales expected to come in at $3.6 billion, a sizable 11% decrease year-over-year. However, FY23 revenue estimates have the top line recovering slightly, with estimates forecasting a 7% year-over-year expansion.

Bottom Line

It’s easy to understand why some investors have cut ties with these stocks. After becoming enormous winners during the initial phases of the pandemic, many of these stay-at-home stocks have become big-time losers throughout 2022.

The high-flying days for these stocks have come and gone. After all, it would be difficult to reason against the sell-offs – valuation multiples were entirely too stretched, making the stocks feel like a ticking time bomb.

However, all three companies above are exciting investments, and I believe that at least two – Teladoc Health and Shopify – are ones that have the potential to be big-time winners. Peloton, on the other hand, doesn’t have very innovative business operations. Additionally, PTON may have to resort to negative ways to raise capital – never a good sign.

SHOP and TDOC appear to have immense potential with the innovative business operations that they provide. Additionally, these investments should be viewed as long-term, and investors should slowly build themselves into a position at a favorable price point – the earnings picture is not bright for FY22 but takes a positive turn when looking into FY23.


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