We may be getting ready for another market crash, but that shouldn't stop you from picking up shares of great companies now. Don't worry about timing the market; you can't. Instead, focus on companies that will reward you in the long run.
Lemonade (LMND -10.78%), Etsy (ETSY -2.10%), and Fiverr (FVRR -1.68%) all posted fantastic fourth-quarter reports and have outsized potential. They're my three favorite stocks to buy right now.
1. Lemonade: The new way to buy insurance
Lemonade founders Daniel Schreiber and Shai Winninger started the company to disrupt what they saw as the last traditional financial industry standing -- insurance. Customers are flocking to the company as it expands into new states and new types of insurance.
Image source: Getty Images.
What makes it so different? For one thing, it's lightning-quick at approving claims. It has now clipped its three-second approval to one second. Compare that to calling in claims at traditional insurance companies and you already have your answer.
But it's more than that. It's fast at everything, including giving quotes for premiums, which is done digitally, and working through customer service claims when they can't be approved digitally. Customer quote: "It was such a great chat, I really wanted to keep going after I was done."
The company has produced three outstanding quarters since it went public in July 2020. In the fourth quarter ended Dec. 31., customer count increased 56% over 2020, sailing past the 1 million mark. Premium per customer increased 20%, indicating that customers are buying more types of insurance -- Lemonade now offers term life in addition to renters, homeowners, and pet. Gross earned premium increased 92%.
Not everything was perfect. Gross loss ratio stayed flat, which the company said is misleading. It includes a high number of new premiums, which have a higher loss ratio. Loss ratio from older premiums did indeed decline.
Expenses increased as the company improved its technology and rolled out more products in more markets. Net loss widened a bit but was in line with expectations, and revenue, in-force premium, and gross earned premium all beat expectations.
On Q4 conference call, management made it clear that this is all in line with how it expects to grow the company. Its Q1 guidance wasn't as strong as anticipated, and the market sent the stock lower after the earnings report. CEO Daniel Schreiber said Lemonade is still in its early growth stages, and working toward high growth and maximum profitability long term. That means investors need to stay with it now, through potential volatility, to reap the rewards later.
2. Etsy: Still becoming mainstream
Etsy was slowly growing before the pandemic hit, but it exploded over the past few months as more people discovered the online platform for handmade products.
Image source: Getty Images.
The company has a capital-light and agile model as a platform, and new sellers and buyers have propelled it into a strong contender in e-commerce. Revenue shot up 129% in the fourth quarter ended Dec. 31, and growth outpaced the broader e-commerce market by two and a half times.
Active customers increased 77% in 2020, and habitual buyers, who shop more than six times a year, grew 157%. These are excellent indications of organic growth, in addition to the more than double the amount of new buyers than the same time last year. It also reactivated 22 million lapsed buyers.
Etsy is focusing on its human connections, trusted name, best search options, and unique items to draw in and retain customers. The search is an important tool, and the company is using it to personalize recommendations and inspire new choices. Etsy is integrating artificial intelligence and "human curation" into the search for an improved experience.
Etsy stock is up 40% so far in 2021, but it's gotten cheaper, trading at 93 times trailing 12-month earnings instead of the more than 150 times over the summer.
3. Fiverr: An online marketplace for freelance professionals
Fiverr had a record quarter, with 89% revenue growth to a total $56 million. It sees a $115 billion addressable market with low online penetration.
Image source: Getty Images.
The company added 30 new categories in Q4 for a total of over more than 500. Active buyers grew 45% year over year, and spend per buyer rose 20%. Take rate, which measures how much of a gig price goes to the company, increased by 40 basis points. The majority of sales still come from repeat buyers, a strong sign of stickiness.
Since technology powers the company's infrastructure, it's continuing to invest in improved functions. That sent expenses higher and deepened its loss, but it should eventually turn around as sales increase.
Fiverr sees itself as a better alternative to traditional freelance connections for both buyers and sellers, and it takes fees from both. It sees its commitment to both creating a flywheel effect that generates greater sales.
With its efficient business model, low penetration, and tremendous opportunity, as well as an environment more and more disposed to digital services, Fiverr is a company that is sure to see continued high growth. Fiverr stock gained nearly 750% in 2020 and is already up 48% in 2021.
