Technology-centric Nasdaq-100 The index has been on a rollercoaster ride since November 2021. It plunged into bearish territory, losing more than 20% of its value before making a strong comeback over the past two weeks, rebounding 13% from its point. 2022 lows. Some individual tech stocks have been swinging even more violently, and as volatility begins to set in, there appears to be great opportunity among the wreckage.
Three Motley Fool contributors like Lemonade (LMND -4.71% ), Risk (RSKD -7.93% )and Latch ( LTCH -4.61% ). Their stock prices have all started heading north alongside the Nasdaq-100, and over the long term, their unique business models can provide investors with potentially better-than-market returns.
Changing the face of insurance
Anthony Di Pizio (Lemonade): Lemonade literally changes the face of insurance. It eliminates human operators from the equation and replaces them with its web-based artificial intelligence (AI) robot, Maya. But investors haven’t been kind to Lemonade shares amid the broader tech selloff, sending them down 76% since July 2021. The company’s ongoing financial losses are part of the concern, but they’re a sad reality on the way to what could be a huge long-term opportunity.
Maya, for example, can offer customers an insurance quote in just 90 seconds. And if you’ve ever tried to file a claim with your insurer, you probably know how frustrating that experience can be. But Maya can approve and even pay your claim in as little as three minutes. So far, Lemonade has attracted over 1.4 million customers and they have mostly been converted by the company’s much larger competitors, which is a major vote of confidence.
After starting out in basic categories like renters, homeowners and pet insurance, Lemonade made the leap into auto insurance last year. It’s the company’s biggest market yet and could be worth up to $316 billion in 2022 alone, so Lemonade had to get some help. He bought an AI-powered insurance broker MetroMileand as part of the deal, Lemonade received 10 years of data along with 49 state insurance licenses, saving the company years of time and money.
Jumping into new markets is a costly exercise, and Lemonade’s $246 million loss in 2021 proves it. But as it continues to gain momentum, the financial situation should improve. It could take a few years, but Lemonade stock has already rebounded 62% from its 52-week low at $16.69, and a Wall Street firm, JMP Securities, thinks the stock could climb 250%. % from here to $95. So if you believe AI is reshaping the insurance industry, Lemonade might be the bet for the long haul.
The potential to become a big winner
Jamie Louko (risky): 2021 has been a record year for company IPOs. According to Barrons, more than 1,000 companies went public through an initial public offering (IPO) in 2021, and that’s not even including those that went public through special purpose acquisition companies (SPACs). For this reason, many investors may have overlooked smaller companies like Riskified, which went public in July 2021 and focuses on e-commerce fraud prevention.
Riskified has developed an artificial intelligence engine that helps businesses prevent theft and failed payments, and it can even reduce the friction that causes churn on an e-commerce platform. It can be difficult for businesses to build internally, which is why Riskified had over $89 billion in gross merchandise volume on its platform in 2021. In a study by Riskified, the top 10 customers reduced their costs averaged 39% while revenue grew 8% when using Riskified, and with only 1% customer churn in 2021, it’s clear the value for its customers is huge.
The company has experienced fluctuations in its gross margin, mainly due to the accuracy of its artificial intelligence models. If Riskified’s AI gets it wrong more often, the company will end up giving its customers more in payments. In the third quarter of 2021, Riskified experienced a sharp decline in gross margin, from 53% a year ago to 46%. It was a blow to the company, causing the stock price to drop: at the time of this writing, Riskified’s stock is down 75% from its IPO price.
That being said, the company made some major improvements in its fourth quarter. Gross margin rebounded to 53%, and while that may still be down from the prior year period, this recovery signals that its AI may not have been as bad as investors thought. previously.
Despite this good news, stocks have not moved much. The company trades at just four times its sales – a major bargain for a company with such high customer retention rates. A big worry was eased in the fourth quarter, and with stocks still trading cheap, this could be a bargain today and provide jaw-dropping returns over the long term.
Modernize the entry experience
Trevor Jennewine (Latch): Latch is a technology company that provides smart building solutions for commercial offices and apartment buildings. Its software-as-a-service product, LatchOS, powers a number of different devices, including door-mounted access controls, delivery assistants, intercoms and cameras. Latch’s product ecosystem creates operational efficiencies for property managers and building staff, allowing them to control access permissions remotely. It also creates a premium experience for tenants and employees, allowing them to unlock doors and control smart home devices from a mobile app.
Latch’s main advantage is its holistic approach to smart building technology. While the majority of competitors only manufacture software or some hardware products, Latch provides all the hardware, software and services that customers need. And that value proposition has helped Latch establish itself firmly in the apartment building vertical. In fact, over 30% of newly built apartments in the United States are equipped with Latch technology.
This competitive advantage translated into rapid growth in 2021. Latch saw the cumulative number of reserved residential units – a metric that measures the total number of units powered by its technology – increase by 94% to more than 590 000. In turn, revenue soared 129% to $41.4 million. Unfortunately, the company’s loss under generally accepted accounting principles (GAAP) widened last year and generated negative free cash flow (FCR) of $115 million. But in 2020, management expects positive free cash flow by 2023. Regardless, investors should be mindful of this over the coming quarters. If Latch burns cash faster than expected, or if it fails to generate positive FCF by 2023, the company may need to raise debt capital.
Even if that happens, I think the future looks bright for Latch. The company values its current total addressable market (TAM) at $54 billion in the United States, but management has considered expanding into Europe, which would bring its TAM to $144 billion. Either way, Latch has a huge market opportunity and strong presence in apartment buildings in the United States. And with the stock down 68% from its peak, now seems like a good time to buy some stocks.
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.