Growth Stocks Near Their Lows: Why Figma, Zoetis, and Pinterest Look Underrated

TradingKey - Currently, if you can invest $5000 into the stock market, it is worth considering as a solid opportunity for this point in time. In addition to headline companies with high valuations, there are also strong businesses that have been punished due to poor performance. In addition, a number of Growth Stocks have also been underappreciated due to the audience only focusing on the top-performing companies.

Stocks that may seem to be performing poorly right now may not continue to do so long term, and typically do not, especially when their fundamentals remain consistently improving towards higher returns.

The concentration of investor focus around a few of the most successful companies means that many other companies have been left out of the action, despite being great businesses. 

Companies exhibiting consistent increases in revenues, customer bases, or margins that have low stock prices will likely provide long-term investors with a more attractive opportunity than companies with increasing stock prices. 

Some examples of companies we believe offer attractive long-term opportunities include Figma (FIG), Zoetis (ZTS), and Pinterest (PINS). All three companies have very different growth drivers, target markets, and values or stories that have yet to capture their full future potential.

Figma

Figma experienced an initial excitement when going public this past year and has since seen a decline of 80%+ from the peak of market pricing. 

The product continues to be a solid offering in that Figma's product/module allows users to work together collaboratively and creates an environment conducive to innovation; because of that, Figma has created a presence with 95% of Fortune 500 companies as its customers.

It is evident that this momentum will continue as Figma's latest reported quarter (ending September 30) reflected a year-over-year revenue increase of 38%, and guidance was raised on the full year, indicating that there is confidence in the company's backlog and long-term demand for its products. 

Therefore, an investor can consider Figma as a long-term holding that is trading at a discounted price compared to when they were originally released into the public market.

Zoetis

This year has been challenging for Zoetis as its stock price has decreased by 27% due to disappointing (in investors' eyes) financial results. 

On the surface, financial results for the third quarter ending September 30 were mixed; revenue grew by only 1% to $2.4 billion, and net income was up by 6% to $721 million. 

However, the longer history with Zoetis suggests that they have performed well over time, having proven to be faster-growing than the animal health industry as a whole, and have continually developed and brought to market new products to fill their pipeline of future opportunities.

With the reset of expectations reflected in their valuation, Zoetis is currently trading at 20x earnings. With continued global expansion and product innovation occurring, there are multiple avenues available to Zoetis for re-accelerating its growth.

Thus, the lower multiple should give longer-term investors a better price point to start building a position in this solid franchise.

Pinterest

Over the past year, Pinterest has seen its stock price drop by over 40%. 

After announcing its adjusted EPS (earnings per share) for the quarter ended September 30 of $0.38, which is $0.04 below the expected $0.42, the stock price decreased significantly. 

AlphaFund's research team believes that Pinterest's earnings miss has led to an overstated valuation, given that the company's quarterly revenue was up 17% year-over-year (a $1 billion+ revenue milestone) and 9% (a $92 million net income) of total revenue.

Given its large user base of over 600 million and the fact that it has a visual-first format, Pinterest is well-positioned to monetize that community. The stock is trading at a very low forward P/E of 12 with a market cap of approximately $13 billion. 

Pinterest has a strong case against competitors in the social media space, given the size of its user base and improving financials.

The Long-Run Case for These Growth Stocks

The three companies mentioned here illustrate a key lesson for investors: a strong business can see its share price decline due to short-term problems or a change in sentiment. However, fundamentally successful companies usually prevail in the long run.

Figma is a fast-growing collaboration software company used by approximately 80% of the Fortune 500 companies and continues to grow at a rapid pace.

Zoetis has a long history of consistently growing faster than its peers, and currently trades at a low P/E multiple, which is attractive for investors. In addition, it pays a dividend.

Pinterest reported an EPS miss, but has seen double-digit revenue growth and generated profits, while having approximately 600 million active users.

If an investor has $5,000 to invest today, it would be prudent to have a basket of overlooked and resilient Growth Stocks across software, animal health, social media, and e-commerce/fintech that have growth catalysts due to factors other than market euphoria.

These stocks will not remain down forever if the underlying metrics continue to improve. Therefore, an investor who is skeptical today could find an opportunity tomorrow to invest in these stocks over the long term.