3 tiny high-growth stocks that look very cheap after the market sell-off

If you invest in smaller companies, you can expect some price volatility. Sales and profits are far from predictable, and competition from large peers can be fierce. If you want your investment in small stocks to be profitable, you will want to diversify your bets and wait patiently for frequent storms.

Three options to help with this diversity have seen a period of volatility in recent months. This makes parts of PubMatic (NASDAQ: PUBM), loan club (NYSE:LC), and Silvergate Capital (NYSE:IF) look like particularly promising investment choices that are trading cheap right now.

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1. PubMatic: A digital ad software disruptor with incredible margins

With an enterprise value of just $1.2 billion at the time of this writing, software company PubMatic has huge potential. It operates in the massive and ever-expanding digital advertising industry. The company helps automate the sale of advertising, primarily for publishers, and is expanding rapidly into connected television (or CTV, video delivered over the Internet).

It’s been a tumultuous first year for PubMatic’s stock following its December 2020 IPO. It has surged several times, only to be humiliated again as the high-growth but highly regarded stocks have been battered throughout. 2021. Currently, the shares are 65% below their all-time high and back to where they debuted in public trading – even though earnings are up 63% in the first nine months of 2021. Management forecast year-over-year sales growth of up to 53% (the fourth-quarter update is due in February).

This values ​​PubMatic stock at just five times its projected 2021 sales. What’s more, it’s impressive that a company of this size and growing so rapidly is also generating a sizable profit. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was $24.3 million last quarter (a 42% margin), and the preliminary outlook for 2022 called for an additional 24% sales growth with an adjusted EBITDA profit margin of at least 30%.

If this small software company can achieve the kind of growth it predicts for the coming year, stocks look pretty reasonable right now. Plus, with $137 million in cash and short-term, debt-free investments, this small player in the digital advertising industry has a lot of potential in the coming years as marketers seek more online promotional campaigns. After the most recent sell, PubMatic stock looks like a buy.

2. LendingClub: This fintech has come back to life

After being hit by scandal a few years ago, LendingClub has returned to investors’ good graces in 2021. Shares are up 129% on the year, despite a massive sell-off in recent months. With growth stocks still beaten so far in 2022, LendingClub is now more than 52% off its 52-week highs, giving it a market capitalization of just $2.3 billion.

It feels like an unfair punishment, though. The peer-to-peer lender and bank’s revenue grew 20% quarter-over-quarter in the third quarter of 2021, and full-year 2021 revenue is expected to reach $806 million, from just $315 million. dollars in 2020. Profit margins are improving rapidly as a result. The third quarter net profit margin was 11%, compared to just 4.6% in the prior quarter. Shares are trading for a measly 9.4 times 2022 earnings estimates.

Admittedly, consumer loans are very cyclical. Unsecured personal loans were behind LendingClub’s revenue surge last year, and an increase in debt defaults or a slowdown in consumer spending could dampen LendingClub’s rise in the coming year. The ongoing effects of the pandemic have increased the unpredictability of financial results.

Nonetheless, after LendingClub’s shares collapsed, a bit of negativity now seems to be factoring in. With just 3.8 million plus customers, this tiny financial technologist could have a lot of upside as a new generation of consumers who prefer digital banking, lending, and investment products come of age.

3. Silvergate Capital: Leading crypto bank with lots of momentum

Shares of cryptocurrency bank Silvergate Capital fell following a failure in Wall Street analysts’ earnings estimates for the fourth quarter of 2021 ($0.66 per share vs. $0.73 expected). It builds on the declines the stock has seen in recent months as volatility in crypto prices weighed on Silvergate. Shares are now down 43% from all-time highs, giving the bank a market capitalization of just $3.2 billion.

While Silvergate’s stock price is closely tied to the crypto markets, the real story of the company itself is the Silvergate Exchange Network (SEN). SEN allows institutional crypto investors to send US dollars anywhere in the world, 24/7 – a vital feature since the crypto markets never close. Some big names are SEN customers, including Coinbase global. In the fourth quarter, Silvergate said it processed $219 billion in SEN transfers, compared to just $162 billion the previous quarter.

Although it reported a revenue shortfall in the final months of 2021 (due to lower-than-expected interest income), Silvergate’s growth trajectory remains intact. Digital currency customers reached 1,381 (vs. 1,305 in Q3) and average total customer deposits were $13.3 billion (vs. $11.2 billion in Q3). As more and more institutions embrace cryptocurrencies, there is a good chance that Silvergate could get back to business with its exchange network and, in turn, claim more deposits on which it can earn more. interest income.

Based on analyst expectations for 2022, Silvergate shares are now trading at just 18 times expected earnings. This makes Silvergate a value play on the fast-moving crypto industry, albeit with a volatile stock that will swing wildly as crypto progress comes and goes. However, with $208 million in cash, $5.18 billion in interest-bearing deposits and no debt, this small bank could play a pivotal role in the future development of the digital currency industry and all its related technologies. (blockchain, decentralized finance, etc.). This could be a timely investment in the future of financial services after the most recent drop in stock prices.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.

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