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Revisiting the Pandemic Winners: Time to Buy?

When the pandemic first struck and lockdown orders were widespread, a handful of stocks massively benefited. It was a fascinating time to be an investor, and those who flocked to the stay-at-home type of stocks were rewarded handsomely with considerable gains.

In 2022, these once seemingly unstoppable stocks have found themselves deep in the red, leaving dents in many portfolios. In its simplest form, many of the high-growth pandemic winners have been massively affected by the Fed’s tightening cycle.

A few big-time winners of the pandemic include Zoom Video Communications ZM, Teladoc TDOC, and Shopify SHOP. Below is a year-to-date chart of all three companies with the S&P 500 blended in as a benchmark.


Image Source: Zacks Investment Research

As we can see, it’s undoubtedly been a tough stretch. However, some buyers have finally appeared over the last month, as illustrated in the chart below. Still, both ZM and TDOC have lagged the S&P 500 notably.


Image Source: Zacks Investment Research

With investors slowly returning to riskier assets amid a somewhat clearer economic outlook, it raises a valid question: should investors turn their attention back to these stocks? Let’s take a look at how they currently stand.

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.

While the outside world shut down, e-commerce sales skyrocketed. Shopping in-store was no longer an option, and investors noticed Shopify’s unique business, driving shares upward significantly.

Shopify’s forward price-to-sales ratio has come down to 9.1X, albeit still sky-high, but well below its five-year median of 22.7X. Still, it represents a rich 127% premium relative to its Zacks Sector.


Image Source: Zacks Investment Research

Analysts have been bearish across all timeframes over the last 60 days.


Image Source: Zacks Investment Research

The Zacks Consensus EPS Estimate for the company’s current fiscal year (FY22) resides at $0.08, reflecting a year-over-year decrease of a steep 87%. However, earnings are forecasted to soar 145% in FY23.

SHOP’s top-line appears to be in much better shape, with the FY22 revenue estimate of $5.6 billion penciling in a sizable 22% year-over-year uptick. And in FY23, revenue is projected to tack on an additional 26%.


Image Source: Zacks Investment Research

Teladoc

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 home.

With the world gripped by fear and uneasiness, Teladoc provided consumers with high-quality healthcare and solutions from the click of a few buttons instead of having to travel to an actual hospital.

Following the sell-off, TDOC’s forward P/S ratio has retraced down to 2.5X, a fraction of its five-year median of 9.9X but representing a 21% premium relative to its Zacks Sector.


Image Source: Zacks Investment Research

Analysts have been bearish for FY22 but bullish for FY23.


Image Source: Zacks Investment Research

The Zacks Consensus EPS Estimate for the current fiscal year sits at -$61.50, reflecting a massive drop-off in earnings year-over-year. However, the bottom-line is forecasted to expand by an impressive 98% in FY23.

Revenue projections allude to a healthy top-line – revenue is forecasted to climb a double-digit 18% in FY22 and an additional 17% in FY23.


Image Source: Zacks Investment Research

Zoom Video Communications

Zoom Video Communications’ ZM cloud-native unified communications platform, which combines video, audio, phone, screen sharing, and chat functionalities, makes remote-working and collaboration easy.

It’s easy to see why the company received tremendous interest during the lockdowns, as Zoom provided easy ways for people worldwide to connect while offices and schools were shutting down.

Zoom’s valuation levels are more reasonable now but remain elevated. The company’s 7.4X forward P/S ratio is undoubtedly on the higher side, representing a 94% premium relative to its Zacks Sector. However, shares trade nicely below the median of 31.2X since IPO in April 2019.


Image Source: Zacks Investment Research

Surprisingly, analysts have been quiet across most timeframes over the last 60 days, with just one downwards estimate revision coming in for the company’s FY24.


Image Source: Zacks Investment Research

Zoom’s bottom-line is forecasted to shrink in the company’s current fiscal year (FY23), with the Zacks Consensus EPS Estimate of $3.78 penciling in a 25% drop. However, the growth is forecasted to pick back up in FY24, with the $4.13 per share estimate registering a 9% uptick.

Top-line projections indicate solid growth. Zoom is forecasted to generate $4.5 billion in revenue throughout FY23, good enough for an 11% double-digit year-over-year uptick. And in FY24, the company’s top-line looks to expand an additional 13%.


Image Source: Zacks Investment Research

Bottom Line

While 2022 hasn’t been kind to the pandemic winners, buyers have started to nibble as of late, with shares registering small gains over the last month.

Now that they’re well off their all-time highs, many investors have simply written these stocks off for good. However, all three companies do have solid future growth prospects, a big reason why they became so popular in the first place.

It’s worth noting that many high-growth stocks carry large valuation multiples, as the market expects high earnings growth. It’s also a major reason why more conservative investors tend to stay away from these stocks, as it’s sometimes challenging to value them.

Teladoc Health TDOC, Zoom Video Communications ZM, and Shopify SHOP are suited for investors with higher risk tolerance. However, it’s absolutely critical that investors know the high volatility nature of these stocks, as it is the future growth you’re betting on.


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Teladoc Health, Inc. (TDOC): Free Stock Analysis Report
 
Shopify Inc. (SHOP): Free Stock Analysis Report
 
Zoom Video Communications, Inc. (ZM): Free Stock Analysis Report
 
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