It’s hard to look at the stock market in 2020 and not feel like you’ve missed some huge opportunities. Tech stocks are booming, working from home seems to be here to stay, and it feels like we’ve had a decade of disruption in just a few months.
As I look at the market today, there are three stocks that stick out as opportunities missed. But if the market crashes, I’m going to scoop up shares of Shopify (NYSE:SHOP), Peloton (NASDAQ:PTON), and Okta (NASDAQ:OKTA) because they’ve proved they’re great companies during the pandemic.
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The future of shopping
Like millions of people around the world, I’ve done more online shopping than ever during the pandemic. But, as I highlighted in a recent article, it’s not Amazon that’s getting most of my business. Hundreds of small businesses that have popped up all over the internet have been more appealing, and most of them run on Shopify’s platform.
The advantage Shopify has over bigger rivals like Amazon is that it can count on innovative retailers to grow its business. Shopify handles the back end of running the website and store and connecting retailers to shipping options, but the merchants are in charge of product design and advertising. And the strategy has obviously led to tremendous growth. The problem for me today is that it’s trading at an incredibly high price-to-sales ratio of over 44 times.
If the market crashes and Shopify’s shares come down to earth a bit, I would jump on the opportunity because this is a company that I think will define online retail for decades.
Companies that succeed in turning low-margin hardware sales into high-margin software sales are few and far between. The biggest problem is that companies need to attract enough customers with hardware to make the software margins meaningful. And that was the uphill battle Peloton faced coming into 2020.
What investors weren’t expecting this year was a pandemic that would force millions of people to work from home. As an added boost, gyms were closed or capacity was limited across the country. Few options were left other than to buy home fitness equipment, and Peloton became a go-to brand as a result.
Now that Peloton has 1.33 million fitness subscribers doing an average of 20.7 workouts per month, it has the critical mass needed to generate a profit. Plus, it can add workout classes to its subscriptions, creating value for subscribers without increasing its own costs much at all.
Peloton isn’t the only game in town when it comes to home fitness, but it’s built a large base of customers and has an extremely strong brand for high-end users. That’s a recipe for long-term success, and if the company can keep adding workout options for customers, it’ll become stickier to its already loyal base of users.
Securing the internet
Security has always been a concern for companies and individuals operating on the internet, but there wasn’t an easy solution for security and user access until Okta. The company allows businesses to offer a simple sign-on solution for users. And for users, they can control their own profile and online services.
As users have adopted the platform, Okta’s revenue has exploded. The company has been spending big on customer acquisition and new services, but what investors should be focused on is the top-line growth.
What I like about Okta’s business long term is that it’s sticky. Once businesses and users begin with its services, they’re likely to stay customers for years. That’s a great business model, and as Okta adds software to its platform, it’ll be a more crucial tool for businesses around the world.
Great stocks for long-term investors
What Shopify, Peloton, and Okta have in common is that I think they’re great companies for long-term investors. They dominate the segments of the market they operate in and have tremendous growth opportunities. If the market crashes and shares drop, they’re going to be at the top of my buy list.