1 Ridiculously Cheap Stock to Buy Hand Over Fist Right Now That Was Just Added to the S&P 500

Once a quarter, Standard & Poor’s 500 The index is subject to rebalancing. Basically, this is a list of requirements that companies must meet in order to be… Qualify and maintain their status as a member of the S&P 500 IndexQuarterly rebalancing ensures that new companies enter the index while replacing companies that are no longer eligible.

One company that was just added to the S&P 500 is a company that specializes in websites and e-commerce. Godaddy (NYSE: GDI). Admittedly, I’ve always considered GoDaddy a bit of a rip-off commercial commodity The business is best known for its creative (if controversial) TV commercials featuring celebrities, models and professional athletes. However, over the years, the company has quietly built an impressive operation. What’s even better is that the stock looks like an absolute bargain right now.

Let’s dive into GoDaddy’s business and explore why this new member of the S&P 500 is a no-brainer opportunity.

GoDaddy’s business is strong, and…

The table includes a number of important financial metrics for GoDaddy, as reported in the company’s earnings report for the first quarter (ending March 31).

category

First quarter 2024

Q1 2023

It changes

Commercial applications and revenue

$383 million

$338 million

13.3%

Basic platform revenue

$725 million

$698 million

3.9%

EBITDA Margin – Applications and Trading

42.3%

39.2%

310 basis points

EBITDA Margin – The Basic Platform

29.9%

27.1%

280 basis points

Data source: Investor Relations. Table by author.

As the table shows, GoDaddy generated $1.1 billion in total revenue during the first quarter — a 7% increase year over year. While that level of growth may not grab your attention, it’s the company’s overall profile that I find most encouraging.

Both of GoDaddy’s core operating segments are highly profitable and are accelerating their margins on an EBITDA basis. This margin expansion flows directly into the bottom line. For the quarter ended March 31, GoDaddy’s free cash flow increased 26% year over year to $327 million.

…There may be more growth on the horizon

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 total customers — a number that was essentially flat year over year.

While this may seem alarming on the surface, I think there are two important insights to consider. First, GoDaddy was able to achieve respectable revenue growth and profit expansion during the first quarter despite a flat customer base. This means that the company’s current user base is holding steady.

Furthermore, considering that average revenue per user (ARPU) was up 5% year-over-year during the first quarter, GoDaddy is likely doing a good job of selling multiple products to its customers.

Another thought to keep in mind about GoDaddy and its growth prospects is to think about the broader economy. It is no secret that over the past couple of years, macro factors including inflation and rising interest rates have been at the center of attention of economists and investors. However, two other demographic groups that are severely affected by inflation and borrowing costs are business owners and consumers.

Over the past three and a half years, nearly 15 million jobs have been created in the U.S. economy, according to the Bureau of Labor Statistics. However, it is important to keep in mind that an estimated 9 million workers have lost their jobs during the COVID-19 pandemic. In essence, the net employment gains over the past few years equate to about 5.5 million new jobs. I see these trends as a major catalyst for GoDaddy.

While the economy has been relatively strong over the past few years, the Fed is still doing what it can to bring down inflation and hopefully lower interest rates. While it will take some time for that to happen, the long-term theme I see is that more new businesses will be created – especially in the small and medium-sized (SME) demographic.

Given that small and medium businesses are GoDaddy’s target customers, I believe the company is well positioned to benefit from an economy that is still in the middle of a recovery.

Image source: Getty Images.

Is GoDaddy stock a good buy now?

As of the time of this writing, GoDaddy shares are trading at a price-to-earnings (P/E) ratio of 12 — about half the P/E multiple of the S&P 500.

The discrepancy between GoDaddy’s P/E ratio and the broader market’s P/E ratio could indicate that the stock is undervalued. And I’m not alone in thinking that’s the case. According to the first-quarter report, GoDaddy repurchased 2.8 million shares of stock under a $4 billion share repurchase program. One of the biggest reasons companies buy back stock is that management may view the stock as undervalued.

Given GoDaddy’s attractive valuation, respectable growth and profit margins, as well as the potential to benefit from an improving economic picture, I think the stock is a no-brainer at this time.

Should you invest $1,000 in GoDaddy now?

Before you buy shares in GoDaddy, consider the following:

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Adam Spatako He has no position in any of the stocks mentioned. The Motley Fool recommends GoDaddy. The Motley Fool has Disclosure policy.

1 Super Cheap Stock You Can Buy Right Now That Just Got Added to the S&P 500 Originally published by The Motley Fool

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