Time in the market is better than timing the market. That’s no secret. Legendary investors made their fortunes not by day trading the hottest stock picks, but by holding stocks of game-changing market leaders over many years or even decades.
However, even Warren Buffett prefers to buy incredible companies at a great price. This long-term holding period becomes even more pleasant when you start from a severely undervalued starting point.
That’s what Fiverr International (NYSE:FVRR) is now an undervalued growth stock with a modest share price and tremendous long-term business prospects.
Fiverr’s rollicking business
The ambition of this company is nothing short of revolutionary.
As the leading name in the gig economy, Fiverr aims to “transform the way the world works together.” Management estimates that the addressable American market for creative, technical and professional freelancers will be worth $247 billion in 2021, and nearly all of the market share will be managed through offline channels. Fiverr and Upwork (NASDAQ:UPWK) are by far the biggest names in this space and their revenue last year was just $1.1 billion. The unused opportunity is enormous.
So Fiverr still has a long way to go and the company is off to a good start.
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Fiverr has 4.1 million active service buyers.
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Annual sales rose 7% in 2023 and 13% in the inflation-hit market in 2022.
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The company is finding new ways to serve its customers (both buyers and sellers) and create new revenue streams. The Fiverr Pro and Fiverr Enterprise services are quickly becoming major drivers of new business, and the Fiverr Neo chatbot underscores the company’s ability to capitalize on customer-friendly technology trends. Fiverr launched all three in 2023.
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The company is comfortably profitable and is showing growing profits across the board. In 2023, profit turned positive while free cash flow increased 28% to $82 million.
You’re dealing with a perfectly healthy company that’s aiming for rapid growth in a huge market with even bigger prospects when Fiverr’s international expansion plans are taken into account – and the company is already turning a profit.
But the stock continues to fall
Yet many investors still can’t get over the image that Fiverr’s freelance services are the epitome of a pandemic lockdown idea. The company was expected to run out of growth fuel as effective vaccines began shifting the remote work world back to more traditional operations.
As a result, Fiverr stock is trading 94% below its all-time high set in early 2021, just before the COVID-19 vaccine rollout began. The stock is changing hands at a bargain valuation of 9.8 times free cash flow or 2.2 times sales. And the skeptics still rule the Fiverr show. Share prices have fallen 42% over the last year, including a 26% decline year-to-date.
Long story short: Fiverr is an ambitious and profitable company with big growth plans and an ambition to change the nature of work and careers.
Bearish investors see this as a falling knife that is more likely to hurt your hands than help your portfolio as you try to catch it on the way down.
Mr. Market is making a big mistake with Fiverr
I do not agree. In my opinion, Fiverr is a severely undervalued growth stock with enormous potential to make money in the long term. At any reasonable price I would be a buyer, and the current discount makes it a no-brainer in my opinion.
Fiverr is on the shortlist of great offers that I will check out first when I find new money to invest. And I highly recommend adding this stock to your own list of promising buying ideas. Just returning to the record price of early 2021 would represent a 20x return on today’s investment. Revenue has almost doubled since then and free cash flow has increased by more than 500%.
This hungry little freelance services orchestrator is on a roll.
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Anders Bylund holds positions at Fiverr International. The Motley Fool has positions in and recommends Fiverr International. The Motley Fool recommends Upwork. The Motley Fool has a disclosure policy.
1 Growth Stock Down 42% to Buy Right Now was originally published by The Motley Fool