The benchmark S&P 500 index is up 15% this year already, but most of its gains can be attributed to the performance of a small group of trillion-dollar titans like Nvidia, Microsoft, and Apple.
In fact, many stocks at the smaller end of the market are actually trading down year to date. That includes software providers like Workiva (WK 1.67%) and Bill.com (BILL 2.07%), which have seen lackluster stock performance since the tech frenzy ended in 2021. These two stocks now trade 55% and 85% below their all-time highs, respectively. Despite the disappointing stock performance, both companies have delivered consistent revenue growth since then, and they are beginning to look like very attractive investments at current levels.
Here's why it might be time to buy the dip on these two growth stocks.
1. Workiva
Modern organizations use dozens, or even hundreds of digital applications to manage their day-to-day operations. Workiva designed a unique software platform to help them aggregate data from those apps onto one dashboard, creating a single source of truth for managers. It makes compiling reports far easier, whether they are for regulators like the Securities and Exchange Commission or for the executive team.
Workiva also expanded into ESG (environmental, social, and governance) reporting to help organizations meet growing regulations requiring them to track things like their environmental footprint, workplace diversity, and social impact. Workiva's ESG platform enables businesses to design frameworks, find the appropriate data, and compile reports. It could be a big source of demand for the company over the long term as governments seek to capture more organizations under ESG reporting rules.
Workiva had 6,074 customers as of the recent first quarter of 2024 (ended March 31), which was a 5.5% increase from the year-ago period. But 1,696 of those customers were spending at least $100,000 annually, and that cohort grew by 24%. Furthermore, 332 customers were spending $300,000 or more per year, which was up 34%. Simply put, Workiva is seeing its fastest growth coming from its top-spending customers, signaling the importance of its software in larger, more complex organizations.
That's contributing to an acceleration in the company's revenue growth. Workiva brought in $175.7 million during Q1, which was a 17% year-over-year jump. That growth is accelerating quarter over quarter as well as compared to Q1 2023. The company achieved that result while cutting its costs, which brought its net loss down by 74% to just $11.7 million. Companies normally see slowing growth when they cut expenses, so this implies Workiva is experiencing lots of organic demand for its products.
Workiva stock peaked at around $160 in 2021, and it has declined by 55% since then. But the company continues to consistently grow its revenue, so its stock now trades at a price-to-sales (P/S) ratio of just 5.9, which is the cheapest level in four years. Considering its revenue growth is now accelerating and the company is on the cusp of profitability, that sounds like a good deal for investors.
2. Bill.com
Bill.com offers a portfolio of software products designed to help small and mid-size businesses streamline their accounts receivable, accounts payable, and expense management processes. The company generates most of its revenue through transaction fees when customers make payments through its platform, and it also charges subscription fees for the use of its software.
Bill.com's flagship product is a cloud-based digital inbox where businesses can upload and receive invoices. From there, they can pay them with a single click, and each transaction is automatically logged in the books thanks to integrations with most leading accounting software providers. Bill.com's Invoice2go subsidiary handles the other side of the equation: It allows businesses to create invoices, send them to customers, and track incoming payments.
Bill.com serves 464,900 customers across all of its products, but that's a mere fraction of its addressable market, which includes 70 million businesses globally.
The company generated $323 million in total revenue during the fiscal 2024 third quarter (ended March 31), which was above management's forecast of $304 million and equaled a 19% increase from the year-ago period. Its revenue growth has decelerated over the last couple of years as it pivoted away from its growth-at-all-costs strategy and started focusing on reaching profitability.
So far, the shift has been a success. Bill.com generated net income of $31.8 million in Q3, which was a big swing from the $31.1 million net loss it delivered in the year-ago period.
Bill.com stock peaked near $335 in 2021, and it has since declined by 85%. However, like Workiva, this company continues to grow nicely, and so its current P/S ratio of 4.1 is now the cheapest in its history. Considering Bill.com has barely scratched the surface of its global addressable market, it might be a great buy for investors who can hold onto the stock for the long term.
