Great stocks can persist through economic thick and thin, but investor sentiment is often volatile. While the cyclicality of the market and investor whims can affect a stock's price in either direction, looking at the underlying business can help you determine whether it fits with your investment thesis and is a wise addition to your portfolio.
If you're on the hunt for stocks trading on sale to add to your portfolio, here are two names to consider the next time you go stock shopping.
1. Chewy
Chewy (CHWY -6.23%) is trading down about 35% from its position one year ago, although shares have gained approximately 14% from the start of the year. That is a year-to-date return that is broadly in line with the S&P 500's performance in that same time frame.
The market has been hard on Chewy, but the business continues to grow on multiple fronts that bode well for the future. The online platform is known for its wide variety of products for animals ranging from dogs to cats to farm animals, which include its own branded products along with thousands of other third-party products.
Chewy also has its own telehealth platform, online pet pharmacy, and a range of health insurance offerings. Recently, the company expanded to Canada, its first international market. It also announced that it would be opening its own veterinarian locations, and as of the first-quarter earnings call had already opened four vet clinics across Florida, Colorado, and Georgia. Management plans to launch several more vet clinics before the year is out.
With its diverse selection of offerings for pet parents, opening its own vet practices does feel like a logical piece of the pie, particularly following the launch of its own telehealth service and compounding pharmacy. The company has partnered with vet clinics for years with offerings like its e-commerce software for vets that allows practices to grow revenue, manage orders through Chewy, and ensure easy delivery of prescriptions.
Right now, most of Chewy's sales come from recurring subscriptions derived from its Autoship program. In fact, about 77% of Chewy's net sales in the first quarter were derived from Autoship, which enables recurring deliveries of a customer's favorite pet products. And 85% of its net sales in the quarter were from non-discretionary pet spending, like consumable products.
Chewy generated net sales of $2.9 billion in the first quarter, a 3% increase from one year ago. It delivered a gross margin of 29.7%, up 130 basis points from a year ago. The company recorded net income of $67 million in the three-month period, up 193% on a year-over-year basis. There's a lot to like about this business, and its beaten-down valuation could present a buying opportunity for certain investors.
2. Fiverr
Fiverr International (FVRR -0.85%) shares have tumbled around 16% over the trailing 12 months. While growth is not hitting the levels the company saw during the peak of the COVID-19 pandemic, the company has demonstrated resilience as it steadily increases revenue and improves overall profitability.
In the company's first-quarter earnings report, CEO and founder Micha Kaufman noted, "While we continue to operate in a very challenging macro with a weak hiring environment and the lowest [small and medium-size business] sentiment in over a decade, our efforts in going upmarket and driving growth in complex services are paying off." Fiverr has continued to align its focus to drawing skilled freelancers and larger enterprise clients, along with leveraging the power of artificial intelligence (AI) in the evolving gig economy.
Revenue grew 6% year over year to $94 million in the first quarter of 2024, with net income coming in at $0.8 million. While active buyers were down year over year, spend per buyer rose 8% year over year. The company also reported an exceptional gross margin of 83.5%, up 130 basis points from one year ago.
In 2021, Fiverr acquired a freelance management system called Stoke Talent. In 2023, the company rebranded the platform to Fiverr Enterprise, which helps larger brands do various tasks from onboarding and paying freelance talent to managing tax, legal, and compliance concerns. Fast-forward to the most recent quarter, and adoption is growing with new customers including IT service companies and a creative marketing agency.
Another huge opportunity for the company's growth is its Fiverr Pro platform, which is a premium marketplace that features some of its top freelancers who are often working on projects for larger business clients. Companies like Unilever and Netflix are among the cohort of Fiverr Pro clients. Fiverr Pro requires a specific vetting process for freelancers to work with clients on this marketplace, and it also features range of specific features and tools to help these enterprises succeed. Fiverr's high-value buyers, which are those who spend $500 or more annually on freelance projects, rose 4% year over year in the first quarter of 2024.
Management has said that Fiverr Pro growth is outpacing the flagship Fiverr platform and generating higher spend by existing customers. The popularity of newer AI-centric categories in recent months is also driving Fiverr's overall growth, as is the expansion of complex services, which are gigs that can be streamlined with AI but still need a human to take the project to fruition. The gig economy is a broad, fast-growing addressable market in which Fiverr plays a key role. Investors might find that value proposition makes it worth buying at least a few shares on the dip.
