If you've been paying attention to the stock market lately, you might think that Fiverr International(NYSE: FVRR) and Roku(NASDAQ: ROKU) could be in serious trouble. Their stock prices have been on a downward trajectory over the past few years, reaching peaks in early 2021 before tumbling back down to earth. Roku currently trades 87% below those lofty peaks, and Fiverr's four-year discount is an even steeper 93%.
But don't be tricked by the negative price trends; these companies are far from being in dire straits. The freelance services expert and media-streaming technology leader are two of my favorite stock-buying ideas nowadays.
Rising revenue and cash flow
One of the most compelling reasons to consider Fiverr and Roku as top bargain stocks is their accelerating revenue growth. Both companies experienced a slowdown in revenue during the recent economic turbulence but have since bounced back.
Fiverr has grown its revenue by 125% over the last four years, while Roku has a slightly more impressive 135% gain. These numbers indicate that both companies are successfully navigating the challenges of the current market and are positioned for continued growth.
Another key factor to consider is the healthy and rising free cash flow (FCF) generated by both companies. During the inflation crisis of 2022, both Fiverr and Roku saw dips in their FCF. However, they have already recovered and are now generating robust FCF once again. Fiverr's trailing FCF currently stands at $90 million, while Roku generated $427 million of cash profits over the last four quarters. This turnaround is a strong indicator of the companies' rock-solid finances.
FVRR free cash flow data by YCharts.
Compelling valuations
Despite their strong and improving fundamentals, both Fiverr and Roku are trading at incredibly modest valuations.
You might be wondering what ratios like price-to-sales (P/S) and price-to-free-cash-flow (P/FCF) actually mean. Think of the P/S ratio as the price you pay for every dollar of a company's sales. You can calculate this value by dividing a company's market cap by its sales over the last four quarters. So, for Roku, which has a P/S ratio of 2.44, you're essentially paying $2.44 for every dollar of sales the company makes. Similarly, Fiverr's P/S ratio is 2.41, so you're paying $2.41 for every dollar of its sales.
These values are comparable to slow-growing value stocks such as discount retailer TJX Companies(NYSE: TJX) or cleaning products specialist Clorox(NYSE: CLX), which trade at 2.33 and 2.37 times sales today, respectively. Those robust but unexciting companies have grown their sales at single-digit percentages in the last five years. Roku and Fiverr each saw their revenue soar by a compound annual rate of nearly 40% over the same period.
The P/FCF ratio is a bit like the P/S ratio, but it looks at the company's free cash flow instead. That's the money a company has left over after paying its expenses and capital expenditures, which can be used for things like investing in new projects.
Roku's P/FCF ratio is 21.9, meaning you're paying $21.90 for every dollar of free cash flow the company generates. Fiverr's P/FCF ratio is even lower at 10.2, so you're only paying $10.20 for every dollar of its free cash flow. Again, these ratios look good even in the context of classic value stocks. The T.J. Maxx parent and Clorox both have P/FCF ratios just below 30.
These low valuations suggest that the market is undervaluing Roku and Fiverr, especially when you consider their strong long-term growth prospects. It's like getting a high-quality product at a bargain price. I might dream about T.J. Maxx tonight, but it's really the same basic idea. If you were shopping and found a top-brand gadget marked down significantly, you would likely snatch it up. Similarly, investors might see these affordable valuation ratios and realize that Fiverr and Roku are steals at their current prices.
Thriving in a stronger economy
The broader economy is starting to get back on its feet, and companies like Fiverr and Roku are reaping the benefits. As the economy improves from the inflation crisis that started in 2021, consumers and businesses are likely to increase their spending on digital services and streaming platforms. Those are the core offerings of Fiverr and Roku, respectively.
This economic tailwind is expected to further boost their revenue and cash flow over the next couple of years, making their current stock prices even more of a bargain. That's particularly true for Roku, which taps into the recovery of online advertising sales, too.
That sector went into a deep, dark hole amid the inflation storms, because big marketing campaigns don't make sense when everyone is holding on to their wallets with both hands. A more free-spending ad market should be great news for Roku.
The companies under my lens are not just benefiting from short-term economic recovery; they are also well positioned for long-term growth. Fiverr continues to expand its platform, attracting more freelancers and businesses looking for digital services. The company hopes to reshape the global market for digital services, and that's a pretty ambitious goal.
Meanwhile, Roku keeps tweaking its streaming platform, growing its user base, and capturing more advertising dollars. These growth drivers are likely to sustain their upward momentum for years to come.
In conclusion, Fiverr and Roku are two top bargain stocks that are ready for a bull run in the second half of 2024 -- and way beyond. Despite their swooning stock prices, both companies have strong revenue growth, healthy free cash flow, low valuations, and support from an improving economy. Investors looking for undervalued stocks with strong growth potential should consider adding Fiverr and Roku to their portfolios today.
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Anders Bylund has positions in Fiverr International and Roku. The Motley Fool has positions in and recommends Fiverr International and Roku. The Motley Fool recommends Tjx Companies. The Motley Fool has a disclosure policy.
