2 growth stocks down more than 90% to buy hands on fist
When a company loses more than 90% of its stock value, it can be easy to assume that it might be structurally constrained. But in the current market environment, where tech stocks are overwhelmed by worries about difficult macroeconomic conditions, investors should also consider other possibilities.
With inflation and interest rates on the rise and forcing many consumers to cut back on spending, bottom lines for all kinds of businesses will take a hit. But some actions, including Assets received (UPST -0.44%) and GoPro (GPRO 1.17%)are unlikely to take a hit that warrants their stocks being down more than 90% from all-time highs.
It’s true that both of these companies face unique challenges in this environment, but they are taking positive long-term steps, and that’s what investors should focus on. Here’s why now might be the perfect time to buy their shares in hand.
1. Upstart: revolutionizing the lending industry
Lending money is an age-old concept, but new ideas are sometimes adopted that revamp the way it’s done, especially in this age of technological innovation. For 30 years, Just IsaacThe FICO scoring system has been the standard method used by banks to assess a potential borrower’s creditworthiness. But Upstart says FICO is outdated and using artificial intelligence (AI) to change the way creditworthiness is determined.
Upstart has built an algorithm that measures up to 1,600 data points on an individual to more accurately gauge their ability to repay borrowed money. This AI process results in an instantaneous decision in approximately 73% of cases, saving lenders time and money.
When credit conditions tightened this year as economic conditions deteriorated, investors panicked and sold off Upstart shares. They worried that the company’s valuation models were built during good times and not battle-tested during a downturn or recession. The upstart management eventually responded with a presentation highlighting that their valuation models were working as expected.
Apparently the new data was good enough for lenders. In the second quarter, the company had 71 banks and credit unions as well as 640 car dealerships using its loan assessment platform. Those numbers represented a year-over-year increase of 184% for banks and 221% for dealers, so it’s clear that Upstart’s partners are still willing to embrace its AI-powered approach.
The company’s revenue has slowed somewhat because consumers are asking for fewer loans, but loan issuance is still expected to grow 5% in 2022. That’s a far cry from the 264% growth Upstart achieved in 2021, but this gain is temporarily very small. – interest rate environment. Upstart is a long-term investment story, and its potential market opportunity is estimated at $6 trillion in annual lending if the platform eventually expands to assess mortgage and commercial loan applications. With Upstart stock down more than 93% from its all-time high, this could be a chance to bottom buy.
2. GoPro: A turnaround for the ages
GoPro has been the longtime industry leader in action cameras, and its 94% share price decline began years ago. GoPro stock hit an all-time high of $93.85 shortly after becoming a publicly traded company in 2014, but when its one-dimensional hardware business began to struggle for growth, the stock plummeted and languished now at just $5.33 per share.
More recently, the company has begun to change things by unlocking new revenue streams through subscriptions and selling more of its camera gear directly to the consumer (relying less on large retail chains and retaining more profit). Not only has GoPro returned to growth, but it is even generating positive profits again.
In the second quarter of 2022, the company had more than 1.9 million paying subscribers, representing a 65% year-over-year increase. For around $50 a year, these customers get exclusive product discounts, unlimited cloud storage, and live streaming capabilities right from their GoPro camera. The company estimates it could generate $100 million in revenue from subscriptions in 2023, and with a gross margin of up to 80%, much of that revenue could flow into the bottom line as profit.
GoPro is gearing up to launch new desktop editing software in 2023, which could add another high-margin subscription revenue stream.
Analysts expect GoPro to generate $0.75 in earnings per share in 2022, down from the $0.90 reported in 2021, primarily due to a slowing economy and weak consumer sentiment right now. Still, that would put GoPro stock at a price/earnings multiple of just seven right now, which is a 69% discount to the Nasdaq-100 multiple of 23 of the technological index.
This implies that GoPro’s stock will need to triple just to trade in line with the wider tech sector. Since the company is no longer incurring losses, it’s a much less risky investment, and its current valuation could turn out to be far too cheap looking back a few years from now, especially more than profits should return to growth as early as 2023. .