3 Growth Stocks with Rock Solid Balance Sheets

The selloff of tech stocks hit shareholders hard, but there’s a silver lining.

Investors who missed out on the meteoric rise of pandemic stocks now have a second chance to buy. The question is how to pick stocks that are likely to recover, rather than those that were overvalued and unlikely to see significant growth in coming years.

Fortunately, the answer is simple. Go back to basics with a thorough analysis of fundamental financial data.

Certainly, there is plenty of useful information on the income statement and statement of cash flows. Among other details, you can find revenue/sales figures, expenses, gross profits, and net earnings – all important for evaluating a company’s growth. However, the balance sheet likely has the data you need to make your decision. There, you will find a company’s assets, liabilities, and equity.

Some of the key ratios that analysts use to understand a company’s financial health come from the balance sheet. Examples include the quick ratio, the working capital ratio, and the debt-to-equity ratio – all critical to making trading decisions in today’s volatile market.

These three growth stocks have come down in price, but they still have rock-solid balance sheets making them a smart addition to your portfolio.

Will Pinterest Stock Go Up?

Pinterest (PINS) is an alternative approach to social media.

Instead of heated debates and endless controversy, Pinterest offers a refuge for those who enjoy collecting and sharing ideas. The platform is primarily focused on images that are displayed in a virtual bulletin board format. Users can create their own idea boards or browse other collections on topics that range from architecture to classic cars.

Pinterest launched in 2010, and it held its IPO in April 2019. In the past year, Pinterest stock has gone as high as $81.77 and as low as $18.32 per share. The company has a current market cap of $14.70 billion, and it earns revenue from advertising – users do not pay subscription fees.

As of May 2022, Pinterest stock is down 80 percent from its February 2021 all-time high, but no one is counting the company out.

In fact, now that users can monetize their own content through the platform, Pinterest is poised for long-term growth. The company’s recovery may have already started, according to its April 27th earnings report. After three consecutive quarters of declining users, first-quarter 2022 showed those numbers starting to creep up again.

Pinterest is strong from a balance sheet perspective, so it can weather the global economic storm that has limited spending on marketing. In the meantime, investors can buy Pinterest stock at value prices, so they are in the right place at the right time to benefit from Pinterest stock’s recovery.

Based on a discounted cash flow analysis, we assess fair market value for Pinterest at $30.65 per share.

Will Shopify Stock Recover?

When investors lost interest in tech stocks, no one thought Shopify (SHOP) would be impacted. After all, e-commerce is growing with or without the pandemic, and Shopify plays a critical role in getting small businesses online.

Among other accomplishments, Shopify grew its market share from 8.6 percent in 2020 to 10.3 percent in 2021, and now it is second only to the colossal e-commerce king, Amazon.

Unfortunately, even Shopify wasn’t immune to the sudden, widespread tech selloff after its fourth-quarter 2021 highs. Growth companies in general and tech growth companies, in particular, are especially sensitive to rising interest rates, and that includes Shopify.

While Shopify stock has gained 1,500 percent since the company’s 2015 IPO, Shopify stock is down more than 65 percent year-to-date.

The brilliance of Shopify’s balance sheet is that it shows the company doesn’t need to take on debt to support its growth. In fact, it has a net cash position.

As a result, increases in interest rates won’t have a direct impact in the form of higher interest expenses. The impact on Shopify is indirect, in that Shopify customers who rely on financing to operate their businesses will have higher interest expenses.

Yes, Shopify stock might experience short-term volatility as it attempts to maneuver through global supply chain issues, inflation, interest rate increases, and the Russian invasion of Ukraine, along with everyone else.

However, Shopify stock is in a good position to recover its value over time, which means those who buy Shopify stock at the current discounted price may see generous long-term returns.

Is Zoom Stock A Buy?

At the start of 2020, Zoom (ZM) hadn’t made a lot of progress since its April 2019 IPO, but when it became the platform of choice during quarantines, everything changed.

By October 2020, Zoom stock traded at more than $550 per share, though it started drifting down as vaccines were introduced.

In the past year, Zoom stock lost more than 65 percent of its value, which is good news for those who missed out on the 2020 heights. Zoom stock’s current price-to-earnings ratio of approximately 23 puts shares in solid value territory – an uncommon position for companies expected to grow rapidly.

The reason Zoom’s drop doesn’t have investors concerned is that the company has big plans – and it can afford to make them happen without taking on lots of debt.

Among other details from its balance sheet, Zoom ended the last reported quarter with $1.06 billion in cash – and no debt. In addition, it held roughly $4.36 billion in marketable securities.

Pandemic or no pandemic, virtual work is here to stay. Zoom already leads in video conferencing brand recognition, and it can keep its place on top by expanding features and services. That may involve acquiring complementary technology or businesses, and thanks to its rock-solid balance sheet, Zoom can afford to spend if the right opportunity becomes available.

Is It A Good Time To Buy Tech Stocks? The Bottom Line

The decline in tech company values can be directly attributed to global economic conditions, including inflation and rising interest rates. That’s good to know when deciding whether it is a good time to buy tech stocks. The factors causing the tech stock decline are temporary. When they pass, companies with strong balance sheets will see their stock prices recover.

That puts Pinterest, Shopify, and Zoom stock in the buy column. All three are likely to resume their growth trajectories after the current conditions pass, and at today’s low prices, they are a bargain.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.