I started mine Fiverr International (NYSE: FVRR) in the fall of 2021, at the princely price of $185 per share. Three months later, I doubled my Fiverr investment, inspired by the freelance services broker’s prospects for long-term business growth. This time, each share cost me $238. And when the shares took a steep dive in 2022, I doubled down on my Fiverr bets again. And I mean that in dollars. The same amount bought many more shares this time, as Fiverr’s stock price had fallen all the way to $41.
So I literally bought the shares of Fiverr in thirds. Here we are, 17 months after my last real-money dip into this stock – and today the shares are changing hands at just $22. It’s still a 47% drop from the cheapest entry point in my portfolio.
Many investors at this point would grumble something about a “falling knife,” sell their Fiverr shares, and never look back. And I think that would be a big mistake. In fact, I’m tempted to add another tranche to this exciting growth stock now.
As much as I enjoy the opportunity to buy a great stock on the cheap, it’s time to turn the chart back up – perhaps as soon as after Thursday’s earnings report. I could be wrong of course, but in the worst case scenario the discount on the bargain bin would only be extended again.
So let me tell you why I think the tipping point could be here as soon as this week.
Why Fiverr isn’t the pandemic game everyone expected
People wrote off Fiverr as a direct response to the COVID-19 lockdowns. Now that the US and global economies are in full recovery, there would be no need for freelance gigs. Therefore, Fiverr’s revenue growth would hit a wall at the end of the work-from-home era. This was the essence of the bearish theory that kicked off the downtrend in Fiverr stock prices in 2021 as effective coronavirus vaccines became widely available.
But that’s not really how Fiverr’s financial progress has panned out.
- Revenues have never stopped growing. Sure, the growth rate has slowed during the inflation-driven economic crisis in 2022 and 2023, but that’s a market-wide phenomenon and hardly unique to Fiverr’s business model.
- The collection of top revenues is already starting to pick up speed again. Sales rose 5.2% year over year in the second quarter, more than three times the pace of 1.5% in the first quarter. And for this week’s update, management expects revenue growth to be around 10%.
- More importantly, the company continued to generate cash profits even in the darkest days of the inflation slump. Fiverr retained $46.4 million in free cash flow over the last four quarters, based on trailing revenue of $343.0 million. That’s a cash-based profit margin of 13.5%, along with modest revenue growth.
So Fiverr hit a speed bump based on inflation and not on the lack of coronavirus lockdowns. The events are interconnected, and we would never have seen an inflation crisis at all if the pandemic had not shaken the global economy like a snow globe, with unpredictable long-term effects. Still, Fiverr proved more sensitive to economic trends than to unique health crisis policies.
Predicting the future path of Fiverr
Fiverr is doing everything it can and waiting for the starting signal of a healthier global economy. Freelancers are just as vulnerable to cash-strapped budgets and soft consumer spending as any other type of entrepreneur. I can’t wait to see how Wall Street will react if this dead growth stock gets a second wind with robust revenue gains, right on top of that solid cash flow margin.
My own investment in Fiverr may be underwater, and while my short-term returns don’t look bright, I’m anchored in the long-term storm. This perspective is not just about sticking to my own views; it’s about seeing the value in weathering the ebbs and flows of the market. Also looking to the horizon beyond immediate profits could be a signal to think about what long-term investments like Fiverr could mean for your portfolio, especially at current prices that may not reflect the company’s disruptive potential.
Sustainable growth is the true source of shareholder value, and Fiverr’s job matching services are poised to provide that in spades. The temporary bumps on the road to prosperity growth are just potholes and speed bumps.
So this week seems like a good time to take action. Fiverr looks incredibly cheap right now, trading at just 2.4 times trailing revenue and 18 times free cash flow. You can buy Fiverr’s high-octane growth stocks at red-tag value prices, and I’m not sure the selling will continue after Thursday’s third-quarter report. Sooner or later, Fiverr’s renewed growth should lead to richer stock prices as well. Fingers crossed for signs of a new revival.
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Anders Bylund holds positions at Fiverr International. The Motley Fool holds positions in and recommends Fiverr International. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.