Yesterday, the Nasdaq sank another 4%, continuing its dreadful year so far. In fact, year-to-date, the index has fallen over 25%, and in the past 12 months, it has fallen around 13%. This represents one of the worst periods for the Nasdaq since the tech sell-off in 2000.
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!
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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.