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1 Ridiculously Cheap Stock That Just Joined the S&P 500 and You Can Buy Right Now

GoDaddy was just added to the S&P 500.

Once per quarter S&P500 The index is rebalanced, which is essentially a list of requirements that companies must meet to be eligible for the S&P 500 and to maintain their membership status. The quarterly rebalances ensure that new companies are added to the index while replacing companies that are no longer included in the index.

A company that was just added to the S&P 500 is a website and e-commerce specialist Go Daddy (Get well soon -0.38%). Admittedly, I’ve always thought of GoDaddy as a fairly standard company known for creative (if not controversial) TV commercials featuring celebrities, models, and professional athletes. But over the years, the company has quietly built an impressive business. And what’s even better: The stock looks like an absolute bargain right now.

Let’s take a closer look at GoDaddy’s business and find out why this new member of the S&P 500 is an absolute sight to behold.

GoDaddy’s business is going well and …

The table contains a number of key financial metrics for GoDaddy as reported in the company’s earnings report for the first quarter (ended March 31).

category 1st quarter 2024 1st quarter 2023 Change
Applications and trade turnover 383 million US dollars 338 million US dollars 13.3%
Core revenue of the platform 725 million US dollars 698 million US dollars 3.9%
EBITDA Margin – Applications and Commerce 42.3% 39.2% 310 basis points
EBITDA margin – core platform 29.9% 27.1% 280 basis points

Data source: Investor Relations. Table by author.

As the table shows, GoDaddy generated total revenue of $1.1 billion in the first quarter, up 7% year over year. While this growth may not be noticeable, I find the company’s overall profile most encouraging.

Both of GoDaddy’s core businesses are highly profitable and are growing their margins on an earnings before interest, taxes, depreciation and amortization (EBITDA) basis. This margin expansion has a direct impact on the bottom line. In the quarter ended March 31, GoDaddy’s free cash flow increased 26% year over year to $327 million.

…further growth could be in sight

One of the more interesting metrics that stood out in GoDaddy’s first-quarter earnings report was the total number of customers. As of March 31, the company had 20.9 million customers – essentially flat from a year ago.

While this may seem concerning at first glance, I think there are two subtle ideas to keep in mind. First, despite a stagnant customer base, GoDaddy was still able to achieve decent revenue growth and profit growth in the first quarter, suggesting that the company’s existing user base is sticking around.

Additionally, given that average revenue per user (ARPU) increased 5% year over year in the first quarter, it’s very likely that GoDaddy is doing a good job of cross-selling multiple products to its customers.

Another aspect to keep in mind when it comes to GoDaddy and its growth prospects is to look at the wider economy. It’s no secret that macro factors like inflation and rising interest rates have been the focus of economists and investors’ attention in recent years. However, two other demographic groups that are heavily impacted by inflation and borrowing costs are business owners and consumers.

Over the past three and a half years, the U.S. economy has added nearly 15 million jobs, according to the Bureau of Labor Statistics. However, it’s important to remember that an estimated 9 million workers lost their jobs during the COVID-19 pandemic. Essentially, the net job gain over the past few years is more like 5.5 million new jobs. I see these trends as a major catalyst for GoDaddy.

Although the economy has been relatively strong in recent years, the Federal Reserve is still doing what it can to reduce inflation and hopefully lower interest rates. While it will take some time for this to happen, I see the long-term goal as more new businesses being created – especially in the small and medium-sized enterprise (SMB) space.

Considering that GoDaddy’s target audience is small and medium-sized businesses (SMBs), I believe the company is well positioned to benefit from an economy that is still in the midst of a recovery.

A person who designs a website.

Image source: Getty Images.

Is GoDaddy stock a good buying opportunity now?

At the time of writing, GoDaddy stock is trading at a price-to-earnings (P/E) ratio of 12 – roughly half the P/E ratio of the S&P 500.

The discrepancy between GoDaddy’s P/E and the overall market may suggest that the stock is undervalued. And I’m not the only one who thinks so. According to its first-quarter report, GoDaddy bought back 2.8 million shares as part of its $4 billion share buyback program. One of the main reasons companies buy back shares is that management may view the stock as undervalued.

Given GoDaddy’s attractive valuation, its significant growth and high profit margins, as well as the company’s potential to benefit from an improving economic situation, I currently believe the stock is a sure-fire winner.

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