High-flying tech stocks have started 2022 on a weaker note with rising inflation and lofty valuations. Notably, they have trended downward since Q4 2021 and have lost another 10% so far this year. However, the weakness with some TSX stocks could be an opportunity for long-term investors.
Why tech stocks tumbled recently
The Treasury yield will likely continue to trade strong amid the rate tightening by the U.S. Fed. The 10-year Treasury yield, which is currently at 1.7%, will likely increase as interest rates rise. So, rising rates are a much bigger concern for tech stocks than the mutating coronavirus variants.
Many tech names were largely immune to pandemic pressures and, thus, outperformed markets in the last 12-18 months. However, now things might overturn as interest rates increase, and it becomes all the more difficult for some tech stocks to justify their stretched valuations.
E-commerce giant Shopify (TSX: SHOP)(NYSE:SHOP) has been one of the biggest losers lately. Since mid-November, it has declined 35% and is currently trading at its eight-month lows. SHOP stock has seen a solid recovery in the past almost every time whenever it has seen such a steep drop.
Shopify has been one of the biggest and fastest-growing companies in North America. Its revenues have grown at an almost 60% CAGR in the last three years. Since 2015, its gross transaction volume has increased at a 68% CAGR because of the merchant base expansion and increased e-commerce spending.
Shopify powers small- and medium-sized businesses with its integrated platform facilitating ease and affordability. Increased adoption of Shopify Payments and Capital could continue its above-average revenue growth in the future. The stock looks strong for the long term, given the growth prospects.
TSX stocks: Should you buy the dip?
Note that the weakness in high-growth TSX tech stocks does not seem done. They could continue to trade weak amid rising Treasury yields. However, investors can consider building positions in multiple tranches.
Canadian tech stock Lightspeed Commerce has been even weaker since the second half of 2021. It has crashed more than 70% in this period and is currently trading at 15-month lows.
Another name that’s been digging deeper but looks strong is Canadian fintech stock Nuvei (TSX: NVEI)(NASDAQ: NVEI). It has fallen 35% since early December but has grown 20% in the last 12 months.
Nuvei provides a payment-processing gateway for e-commerce merchants, travel websites, and cryptocurrency platforms. Its integrated platform supports several currencies in different markets.
It has been a double whammy for Nuvei stock in December. Valuation concerns coupled with allegations from an activist short-seller notably brought the stock down. It has been trading highly volatile since last month.
NVEI stock for the long term
However, the company has offered an upbeat financial growth outlook for the long term. In addition, its competitive advantage in the sports-wagering domain stands tall and creates entry barriers for peers.
It could see significant topline growth if sports betting sees favourable regulatory outcomes, mainly south of the border. NVEI looks attractive for the long term after the recent correction and given its appealing growth outlook.
