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The market ended 2021 with well-above-average gains despite the pandemic’s continued ravaging of the world. The S&P 500 gained 26.9% last year, but it’s starting the year on a downtrend. Are stocks inflated? Possibly. But that doesn’t mean you can’t still find stocks with huge growth potential.

Part of the trick is to avoid short-term excitement and focus on great companies with long-term potential. Using that idea as a basis, my top-three growth stocks to buy right now are Fiverr International (NYSE:FVRR), Airbnb (NASDAQ:ABNB), and Lemonade (NYSE:LMND). Let’s find out a bit more about these companies and their stocks.

Image source: Getty Images.

1. Fiverr: The workplace of the future?

Fiverr’s stock price ended 2021 down 44% despite posting continued growth and expanding with acquisitions and new services. As with many growth companies, it’s been back and forth between spending money on expanding and trying to become profitable. Fiverr focused on the former last year at the expense (literally) of the latter, but it was the right move.

Before the pandemic, Fiverr was finding its footing and its niche in the freelance service industry. If you’re wondering where its name came from, it originally featured $5 projects that it called gigs. It kept the name gig but scrapped the $5 plan, developing its e-commerce model, which it calls “service as a product.” In contrast to other freelancing sites, where sellers bid on projects posted by buyers, on Fiverr, buyers browse a “product” catalog of services that come with a defined scope and price, from bio writing to personal fitness. 

Revenue increased 42% year over year in the third quarter, and it’s expecting around 35% growth in the fourth quarter. Fiverr is immune from supply chain issues, and it probably benefits from current labor shortages, as companies are forced to find new sources of labor. But there are so many reasons to be confident about the company’s near and long-term outlook. Specifically, I’m excited about it leaning into its enterprise segment, called Fiverr Business. This focuses on larger clients who bring high engagement to the platform, sourcing many freelancers for various roles within their businesses. This feeds into Fiverr’s unusually high (and growing) take rate, which increased to 28.4% in Q3. That’s the average cut the company takes from each project. In November, Fiverr acquired Stoke Talent, which helps business clients manage their workspaces.

Fiverr stock is still well above its pre-pandemic price, and it’s still expensive, trading at 16 times trailing 12-month sales. But this may be the year it turns the corner on profitability, and it has tremendous potential for growth.

Image source: Airbnb.

2. Airbnb: A better way to travel

Airbnb stock was volatile in 2021. It started the year just post-IPO, hitting a high of $219.94 in February, crashing below its first-day closing price at $134, and ending the year up a decent 13.4%.

That’s understandable since travel is still highly impacted by the pandemic, and Airbnb’s stock started out highly valued. It posted considerable growth last year, and as travel picks up, trends are moving in Airbnb’s favor.

In Q3, revenue increased 67% year over year to a record $2.2 billion, and gross booking value (GBV) increased 48%. That’s impressive, considering much of the world was still closed off at the time. It exposes many of Airbnb’s advantages in its market.

More than 40% of gross nights booked in Q3 were within 300 miles of home. People are escaping where they can, and Airbnb provides local residences where it wouldn’t necessarily be feasible to build hotels. Rural bookings increased more than 40% from the 2019 Q3 when guests were even less likely to find traditional travel accommodations. During the pandemic, more than 6,000 cities had their first-ever booking.

Stays of 28 days or more continued to be the fastest-growing category in Q3, and this is at least partly due to the work-from-home trend. People are freer than ever to work wherever they want, and they’re taking their work with them to new places.

Airbnb released a winter upgrade on top of last summer’s upgrade, adding new features to make it an even smoother experience. This serves to enhance an already attractive model.

As skies open up and people feel comfortable getting back to normal levels of traveling, Airbnb stands to benefit. As a shareholder, you will, too.

Image source: Getty Images.

3. Is 2022 going to be Lemonade’s year?

There are many reasons those who sold their Lemonade stock in 2021 should reconsider it in 2022, even though the prices continue to tank in the new year. The insurance seller’s stock reached new lows this month, trading down 18.8% year to date. There hasn’t been any recent news to justify that drop, and a lot of it is coming from increased short-selling activity. Lemonade stock has been a target of short-selling for many months. It has been a short-squeeze candidate ever since last January’s epic GameStop short-squeeze created a host of new possibilities for the individual investor.

Looking away from speculative investing activity and toward Lemonade’s business, you will discover a disruptive business model with tons of future potential. Lemonade’s business has been demonstrating extraordinary growth, capturing market share, and entering new markets. The two issues for the company have been an unstable loss ratio and growing losses, both are just standard situations for a new insurance company. The loss ratio improved in the third quarter (ending Sept. 30), and investors would need to see that stabilize for the stock price to increase. Management says that new insurance products typically have a higher loss ratio, and Lemonade launched several last year.

As for losses, they’ve been increasing as they help finance new launches, and they became even bigger with the company’s MetroMile acquisition. Scaling should help here, but it could take time.

Even at the lower price, Lemonade stock trades at 24 times trailing 12-month sales, which is super-high. However, CEO Daniel Schreiber noted that if you substitute its in-force premium for revenue, which is a more comparable number to other insurance companies’ top lines, you get a much lower valuation — 7.7 at the current price.

Lemonade has its work cut out for it. But if you buy in at today’s low price, you could see tremendous gains.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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