Thus far, 2022 has served as a wake-up call for new and tenured investors that stock market crashes and corrections are an inevitable part of the investing cycle. But when volatility rears its head on Wall Street, so does opportunity. Historically…
it’s always been a smart move to put your money to work in high-quality businesses during crashes and corrections. Eventually, sizable dips in the broad-market indexes are always put in the rearview mirror. In other words, patience pays when you own great companies.
Right now, there are three beaten-down growth stocks that select analysts and investment banks believe will rebound over the next 12 months in a big way. Based on a few of the highest published price targets, this trio offers upside ranging from 128% to 178%, according to Wall Street.
Shopify: Implied upside of 128%
The first growth stock potentially due for a big bounce is cloud-based e-commerce platform Shopify (NYSE:SHOP). Shares of the company have been halved since hitting an all-time high in mid-November. However, this hasn’t quelled the bullishness of Mark Zgutowicz of Rosenblatt Securities, who’s maintained a $2,000 price target on shares of the company. If this prognostication were accurate, Shopify would return 128% for its shareholders over the next year.
Zgutowicz’s optimism primarily boils down to two key points. First, there’s the excitement tied to Shop Pay, the company’s buy now, pay later option. Even though more opportunity is realized from merchants already within the Shopify ecosystem, Zgutowicz sees ample revenue and gross profit generation emerging from Shop Pay use and payment installments from non-Shop merchants.
Secondly, Zgutowicz believes engagement via the Shopify app isn’t being properly accounted for in the current valuation of the company. Even though Shop App is defined as more of a long-term growth initiative for the company, it’s hard to overlook the rapid increase in monthly active users driven by this tool.
Speaking of hard to overlook figures, Shopify has also dramatically increased its total addressable market over the past two years. Small businesses, which represent Shopify’s core customer, are now considered to be a $153 billion opportunity for the company, up from a previous forecast of $78 billion.
What’s more, 86% of the company’s revenue derives from subscription services. With strong retention rates, this leads to highly predictable revenue and cash flow.
If you’re wondering what’s behind the 50% decline in shares in less than three months, look no further than the Federal Reserve and rapidly rising inflation. When the nation’s central bank turns hawkish and begins raising rates, it’s not uncommon for growth stocks with high valuation premiums to compress. Even with the mammoth opportunity on Shopify’s doorstep, its multiples to both sales and profits were in nosebleed territory.
While the long-term thesis for Shopify remains as rock solid as ever, Zgutowicz’s lofty price target is likely unreachable over the next year.
Lovesac: Implied upside of 129%
If small-cap stocks are more to your liking, furniture company Lovesac (NASDAQ:LOVE) has lost 48% of its value since hitting an all-time high above $95 in June. But according to analyst Camilo Lyon of BTIG, Lovesac can hit $113 a share over the next 12 months. This implies hearty upside of 129%.
Lyon’s research note outlining his and his firm’s lofty price target on Lovesac predominantly focuses on the company’s long-term opportunity and its surprising growth from showrooms and digital channels in the fiscal third quarter.
Typically, the furniture industry is slow growing and boring. It’s highly dependent on foot traffic and it features many of the same products from wholesale furniture providers. Lovesac, on the other hand, is challenging traditional furniture stores on two fronts.
First of all, Lovesac’s furniture provides function, choice, and eco-friendliness that other retailers and furniture manufacturers can’t match. Approximately 85% of the company’s revenue comes from…
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