2 growth actions to avoid after the pandemic

The US economy is on the path to a gradual recovery, and this has been bullish for many stocks in 2021. As a benchmark S&P 500 The index continues to hit new highs – already up over 20% since the start of the year – you might be tempted to chase high-growth stocks that seem to have been easy money up. here.

But it’s important to remember that past performance is not a reliable indicator of future results. This is especially true given the once-in-a-century pandemic that investors have just been through. While some stocks have performed well in the home care economy, this performance may not hold up when we get back to normal life.

There is still good value in this market, but here are two popular growth stocks to avoid as they show signs of slowing down in the post-pandemic world.

Image source: Getty Images

1. DoorDash decelerates

Food delivery appeared to be an obvious winner during COVID-19 lockdowns, and by Dash (NYSE: DASH) has had astronomical growth to prove it. In the third quarter of 2020, the company delivered 268% year-over-year revenue growth, but it would still be difficult to maintain that pace.

In fact, this quarter turned out to be the peak.

Data source: Company deposits. YOY = year after year.

Revenue growth has steadily declined since then, falling below triple digits in the second quarter. While 83% is still strong, DoorDash warned investors to expect a seasonal slowdown by the end of the year, so there is little hope of returning to 2020 growth levels anytime soon. to come up.

Analysts actually expect full-year revenue growth to slow to just 19% in 2022. While DoorDash has plenty of time to improve on this trend before then, it puts in evidence the contrast between what the company could achieve in a domestic economy compared to the normal conditions to which we return.

But the biggest concern is DoorDash’s lack of profit. Despite all of the spectacular performance in 2020, the company failed to hit bottom line as it reported a loss of $ 7.39 per share for the year. Red ink persisted in the first half of 2021 with losses of $ 0.64 per share. As the business is on the verge of breaking even, slowing revenue growth can hamper its efforts to generate long-term profits.

DoorDash also faces competitive headwinds. A second quarter Bloomberg survey found that DoorDash, Uber Eat, and GrubHub shared up to 40% of their customers. Food delivery is a business with few barriers to entry, and that could mean DoorDash’s hopes for prolonged profitability will be dashed by endless spending on customer acquisition.

With stocks trading at nearly 14 times estimated sales in 2021, no profit on the horizon and rapidly decelerating growth, investors may want to be cautious about jumping to current levels.

Image source: Getty Images.

2. Bumble loses some buzz

The second stock to avoid after the pandemic is the female-centric dating app buzz (NASDAQ: BMBL). You might think a wide open company is good for dating – and it is – but the evidence is mounting, the foreclosure period was just better. Remember, app-based technology only works well when people spend time using it, and we’ve all had a lot more screen time during the pandemic.

A spokesperson for Bumble noted that the app saw a 26% increase in engagement in March 2020, as lockdowns entered their most stringent phases. It showed up in the company’s quarterly figures, and much like DoorDash, growth has since slowed.

Looking at revenue sequentially (quarter over quarter), we can observe the almost complete blockage of Bumble growth in early 2021 with the economy reopening.

Data source: Company deposits.

Bumble also has a second successful dating app called Badoo, which is popular in the European and Latin American markets. It’s not an app where women act like Bumble first – it’s more conceptually generic – but it has taken a toll on the overall financial position of the business.

Although Badoo has a similar number of users to Bumble, its average revenue per paying user is around 55% lower. Additionally, average revenue per paid user grew only 4% year on year, compared to 13% for Bumble in the second quarter, while its user base is also growing at a slower pace.

Analysts expect Bumble to generate earnings per share of $ 1.65 this year, but that profitability is mainly due to a recognized tax advantage in the first quarter. Expectations for 2022 provide a more realistic picture of where the company stands with earnings per share well below $ 0.34.

That puts the stock’s valuation at over 175 times the earnings estimates for 2022. This shouldn’t come as a surprise as stocks haven’t fallen since the February IPO.