Established chipmaker

Nvidia (NASDAQ: NVDA) has excelled in the past few years, rising 350% in the past five. However, due to macroeconomic concerns, the Nvidia share price has sunk 40% in the past six months and around 8% in the past year. There are equally some worrying signs for the firm. For instance, in Q2, the company expects a $500m reduction of revenues, due to the Russia invasion of Ukraine and Chinese lockdowns. But I see these as short-term issues. 

Indeed, the firm is still reporting excellent financials, with Q1 revenues up 46% year-on-year to $8.29bn. Further, with Q1 operating profit margins of over 40%, Nvidia has one of the largest margins among all growth stocks. This has also enabled the group to launch a share repurchase programme of $15bn until December 2023, which should boost metrics like earnings per share. Therefore, Nvidia shares are a no-brainer buy for me. 

More resilient growth stock 

It is rare to find growth stocks that are raising guidance in the current macroeconomic environment. However, Salesforce (NYSE: CRM), a cloud-based software and consumer relationship management company, recently increased its adjusted profit forecasts for 2022 to $4.75 per share, up from previous forecasts of $4.63. This has been driven by expanding operating margins, highlighting that the firm has dealt with inflationary pressures excellently. 

There are still risks for the firm, however. For instance, some analysts have pointed to the potential for companies to cut costs to cope with inflation, and this could include cancelling subscriptions with Salesforce. However, with a price-to-earnings ratio of around 35, which is historically cheap for the group, I am still tempted to add more Salesforce shares to my portfolio. 

Global e-commerce giant 

Sea Ltd (NYSE: SE) is the final growth stock I would buy on the dip. After sinking over 70% in the past year, this is the heaviest faller out of the three. With the group continuing to post very large losses – including a total adjusted EBITDA loss of $593.6m in 2021 – it is not hard to see why. However, this loss has been recorded due to the firm’s heavy investment into its e-commerce sector. 

This investment has led to soaring revenues. For example, in 2021, revenues for the group reached $10bn, which was a 127.5% increase year-on-year. This growth has also continued into 2022, with Q1 revenues up over 60% year-on-year. Although this signals slightly slower growth, it is still far higher than other growth stocks. After the recent dip, Sea Ltd also has a forward price-to-sales ratio of under 3, compared to over 30 at the start of 2021. This indicates that the e-commerce company has dipped too far. Therefore, I am adding more Sea Ltd shares to my portfolio. 

Such a significant fall has mainly been caused by inflationary pressures, which have led to several recent interest rate hikes. This reduces the value of future cash flows and makes it more expensive to borrow for growth. This is particularly damaging on growth stocks, which constitute the majority of the Nasdaq index. But as history has shown, these sell-offs can present perfect opportunities to buy quality companies. For example, in the dotcom bubble, Amazon stock sank around 90%, before climbing around 30,000% over the next 20 years! 

Sea Ltd (NYSE: SE) an e-commerce and digital entertainment company based in Southeast Asia, is one growth stock I think has now reached solid buying levels. Although it is not actually listed on the Nasdaq, instead opting for the NYSE, it has the traits of a typical Nasdaq stock, including its strong growth profile.

Recent trends in the Sea Ltd share price

Over the past few months, the Sea Ltd share price has been on a solid downward trend. In fact, after reaching highs of $370 in October 2021, the company has now sunk to around $65 and is down around 70% over 12 months. This is a fall of over 80%, not too dissimilar to Amazon’s decline after the dotcom bubble burst 20 years ago. 

Alongside the difficult macroeconomic environment for growth stocks, Sea Ltd has faced several individual concerns. For example, in its digital entertainment sector, its flagship app Free Fire has been banned in India. This is due to security concerns revolving around the company’s links to China. There’s also evidence of a recent moderation in online activities and fluctuations in engagement. Accordingly, there’s a fear that growth is slowing in the digital entertainment sector, and this will lead to less money to invest into other sectors of the business. 

In addition, losses at the company are soaring. Indeed, for 2021, total adjusted EBITDA was a loss of $593.6m. This was due to the heavy investment into both Shopee, the firm’s e-commerce sector, and its new financial services sector. 

Why am I continuing to buy this growth stock?

Despite the soaring losses, and slower growth prospects, I remain optimistic about Sea Ltd’s future. For example, last year, e-commerce revenues were able to reach $5.1bn, a 136% year-on-year increase. This year, a further 76% increase increase is expected. The company has also shown discipline recently, pulling out of the French market. This will allow it to focus on growing markets, such as Latin America, which should help fuel growth. It should also reduce expenses. 

Excellent revenue growth is a sign that Sea Ltd is growing market share globally. Hopefully, this will translate into strong profitability in the future. After the recent sell-off, Sea Ltd also trades on a forward price-to-sales ratio of less than 3. In 2021, the growth stock had a P/S ratio of over 30, so it may now be severely underpriced. Therefore, despite worries around inflation and slightly slower growth, this is a stock I’ll continue adding to my portfolio at these levels. 

But as an investor I take a long-term outlook, and these are two stocks I feel are no-brainer buys right now.

A US fintech stock

SoFi Technologies (NASDAQ: SOFI) went public via a SPAC at the end of 2020 and had an incredible start to life as a public company, reaching around $25 in January 2021. However, the past few months have been far less pretty for the fintech, and it’s currently priced at under $10. For a company with such excellent potential, this seems too cheap.

For example, SoFi is attracting new customers at extraordinary rates. Indeed, in the full year 2021 trading update, it had around 3.5m members, compared to just 1.8m members the year before. Full-year revenues were also able to rise 67% year-on-year to $285m. This demonstrates the excellent growth achieved by SoFi, and I feel this is only the start.  

I was also encouraged by the fact it recently acquired a bank charter, meaning that it will be able to directly lend to customers. This should help offset some of the inflationary pressures, as it will be able to lend at higher interest rates. Accordingly, this should boost future profitability.

Unfortunately, SoFi trades at a fairly high price-to-sales ratio of around 8, and it remains unprofitable. Yet while these are risks, SoFi’s incredible growth is showing no signs of any slow-down, and I continue to believe this growth stock is a long-term buy.

A growth stock with over 100% revenue growth

Sea Limited (NYSE: SE) is another growth stock that piques my interest. Indeed, in the company’s full-year trading update, it reported full-year revenues of $10bn, a 127% year-on-year increase. This was partly due to its strong diversification, which includes the modern e-commerce segment, called Shopee, and its renowned digital entertainment sector, Garena. After recent dips, the company also trades at a price-to-sales ratio of under 7, very cheap for a stock that is growing at such an incredible rate.

Even so, there are slight signs that growth may be slowing. For example, as the pandemic starts to subside, there has been a recent moderation its engagement in the company’s digital entertainment sector. The e-commerce segment also saw revenue growth slow to 90% which, although still incredibly high, was lower than previous quarters.

Losses are also continuing, and in 2021, it reported an adjusted EBITDA loss of $593m. But this is due to the heavy investment into Shopee, which I hope will pay off in the future. Therefore, this is another growth stock I’ll continue to add to my portfolio, as its potential is far too tempting.

The recent results

The company’s recent 2021 results were a bit of a mixed bag. In many ways, the excellent growth of the business continued. For example, total Q4 revenue was $3.2bn, which was a year-on-year increase of 105%. This also enabled full-year revenue to reach $10bn, a 127% year-on-year increase. This represents outstanding growth, which is far ahead of the majority of other growth stocks.

Nonetheless, there were also some slightly worrying signs that growth may be slowing. For example, the e-commerce segment, called Shopee, saw revenue growth of ‘only’ around 90%, far less than previous quarters. The digital entertainment sector is also likely to see a slowdown for a couple of reasons. Firstly, there has been a recent moderation in online activities and fluctuations in engagement. Secondly, the company’s flagship app, Free Fire, has been banned in India. This is due to security concerns revolving around the company’s links to China.

Due to its investment in the e-commerce segment, the company is also seeing widening losses. For example, in 2021, adjusted EBITDA was a loss of $593m. There are also no signs of the group reaching profitability any time soon, despite the fact that the digital entertainment sector is consistently reporting positive EBITDA. This is because free cash flow is being invested into the e-commerce segment, which is expanding around the world. While this is helping drive the excellent revenue growth, such large losses still pose a major risk.

Why would I still buy this growth stock?

Despite the risks, I still feel that Sea Ltd is a no-brainer buy. For instance, after its recent dip, it trades on a price-to-sales ratio of under 7. For a growth stock, especially one seeing rates of growth like this, it feels incredibly cheap. This is why I think it would fit the bill as a Warren Buffett-type stock.

Further, I think worries about the digital entertainment sector have been overdone. And after Tencent, which is a major Chinese company, got rid of its Class B voting shares (that gave it special rights), Sea Ltd’s links to China are far more limited than it may have seemed. Therefore, I believe that the ban in India may be overturned. This would have a positive impact on the Sea Ltd share price.

Finally, I am excited by Shopee. The e-commerce segment has been growing at rapid rates and has already expanded in Southeast Asia, Europe and most recently, Latin America. In many of these markets, e-commerce has still not fulfilled its potential, meaning that there’s significant scope for sales to rise. Therefore, I’ll continue to buy Sea Ltd shares while there’s fear in the market.

The recent ban

India has banned several apps that have ties to China, citing security concerns. Despite Sea being based in Singapore, it has close ties to Tencent, a Chinese company, and this meant that Free Fire was one of the apps banned. This is a risk for the company, because India was one of the biggest markets for the game.

Even so, I believe that the 20% fall yesterday was a market overreaction. Indeed, India only represents 3% of the gaming sector income for the company. Secondly, I believe there is a high chance that the ban will not last for long. This is because at the date of the ban, Tencent still held Class B shares with special voting shares. Nonetheless, it has since given up these special voting shares, meaning that it is now just an ordinary shareholder. Therefore, Sea’s ties with China are far more limited than it may seem. This will hopefully see the ban overturned, and the share price should be able to recover as a result.

Other factors

It also has far more growth prospects than just Free Fire, a factor I like to see in growth stocks. Indeed, using the profits generated from its gaming sector, it has launched Shopee, an e-commerce company operating around the world. Recently, Shopee has managed to expand into Latin America, Asia, and some parts of Europe. In the third quarter, revenues in the e-commerce sector were also able to reach $1.5bn, a 134% increase year-on-year. This was even higher than the company’s digital entertainment sector.

Such diversification also means that revenues for 2021 are likely to reach around $9bn, which is more than a 100% increase year-on-year. After the recent dip in the share price, this means that it trades at a price-to-sales ratio of around 8. Due to the company’s incredible rates of growth, this seems far too cheap. For example, in the past, it has traded at P/S ratios of around 30. 

Of course, there is the risk that growth may slow in the future, especially as the effects of the pandemic start to wear off.

Will this growth stock recover?

In the short term, several issues continue to face the firm, and the recent ban in India is a reason to feel slightly cautious. Even so, in the long term, I’m far more confident. The growth stock has been expanding all around the world and is capturing multiple unpenetrated markets. Management has also proven adept. Therefore, I believe that this recent dip offers an ideal time to add more Sea shares to my portfolio.

Why am I not buying Amazon shares?

Amazon dominates the e-commerce market and has seen tremendous growth over the past few years. In fact, in 2018, the company recorded net sales of $233bn, and these increased to $386bn in 2020. In 2021, net sales should easily exceed $400bn. Profits have also increased in line with sales, with the company seeing year-on-year profit growth of 84% in 2020.

But despite such excellent growth, there are signs that the pandemic boom is easing, and growth is starting to slow. Indeed, for Q4 2021, Amazon expects sales between $130bn and $140bn, which is ‘only’ year-on-year growth of between 4% and 12%. Further, the company is experiencing several headwinds due to labour shortages, wage inflation and global supply chain constraints. This is likely to lead to around $4bn in costs and will see fourth quarter operating profits drop significantly from the $6.9bn it recorded last year. Such slowing growth makes the company’s price-to-earnings ratio of around 60 hard to justify. It remains a hugely successful company, of course. But all this is why I’m avoiding Amazon shares, in favour of other e-commerce stocks.

The e-commerce stock I’d buy instead

Sea Limited (NYSE: SE) did extremely well during the pandemic. At its IPO it was $15 a share (in 2017), yet it reached more than $350 a share in 2021. But things have been worse recently, and the shares are currently priced at around $170. This is partly due to rising inflation, which is a major negative for growth stocks, and will likely make it more expensive to borrow money. Further, this month, the company’s largest shareholder, Tencent, also reduced its stake in the company. This saw the shares dropping around 10% on the back of this news. So, why would I still buy?

Firstly, the company offers far more than just an e-commerce stock. Indeed, it also provides mobile gaming and digital payment services. This includes the mobile app Free Fire, which was the most-downloaded mobile game globally in 2019 and 2020. Free Fire brings in a significant amount of profits and cash flow to the company.

These profits have been reinvested in the e-commerce business, Shopee, and the payments, subsidiary, Sea Money. I’m particularly impressed by Shopee, considering its recent expansion. In fact, it now operates all around the world, including in Asia, Latin America, and some parts of Europe. Many of these countries, especially in Asia and Latin America, are expected to see very large growth in the e-commerce sector.

Such diversification has also meant that revenues for 2021 are likely to reach around $9bn, over a 100% increase year-on-year. As such, it’s clear that Sea Ltd is growing at a far quicker pace than Amazon, even though it remains unprofitable. After its recent dip, Sea Ltd also trades at a price-to-sales ratio of just over 10, which seems reasonable for such a fast-growing company. Therefore, I’m extremely tempted to buy some shares.