The market's rallying, but not every stock is a ship that's moving higher with the tide. Some investments have been getting rocked lately, and since holiday shopping is all about finding deals, it's time to stroll through Wall Street's sales rack at the back of the store.
I ran a screen for stocks that have shed a third of their value so far this quarter. It's not a pretty picture. Most of the dozens of non-microcap stocks on that list are there for a reason. However, it's also a great place to go bargain hunting. Trivago (NASDAQ:TRVG), Pandora Media (NYSE:P), and LendingClub (NYSE:LC) have all been hit hard in the fourth quarter, but better times could be ahead for all three out-of-favor investments.
Trivago: Down 37% in Q4
We're two days away from celebrating the end of Trivago's first year of trading, and it's fair to say that the rookie has taken investors on a bad trip. Trivago went public at $11 on Dec. 16 of last year, more than doubling by its summertime peak in the mid-$20s, only to find itself a broken IPO trading in the single digits these days.
The online hub of lodging deals initially wowed the market with its stellar growth. It lived up to the hype during its first two quarters as a public company, posting top-line growth of 68% and 67%, respectively. Unfortunately for Trivago, it's at the mercy of the world's two largest travel portals to derive a good chunk of its revenue since its model is based on advertisers bidding for placement on its hotel listing pages, and they've been getting smarter about lowballing the process. Revenue decelerated to a mere 17% uptick in the third quarter, and it's calling for just 2% to 15% growth in the current quarter. Trivago doesn't expect to return to growth until the latter half of next year when the comparisons get kinder.
This may seem to be a lousy time to get into Trivago with bleak results likely to get even bleaker through the next two quarters, but at least one analyst sees this as an opportunistic time to buy into the platform that remains popular with travelers as it struggles through its monetization issues. Deutsche Bank upgraded the stock last week after an encouraging analyst meeting.
Pandora: Down 35%
Pioneers don't always come out ahead. Pandora was an early darling in streaming music, but the discovery app has struggled to keep up with the popularity of the on-demand market where Spotify is the undisputed champ.
Pandora was a hot takeover candidate last year, even reportedly rebuffing Sirius XM Radio's offer to buy it at $15 a share. Sirius XM eventually settled on a 19% stake at a much lower price point six months ago. With Pandora stock now in the single digits, it's safe to say that most shareholders would love to go back in time to push the company into Sirius XM's arms when it was on bended knee last year. That can't happen, but it doesn't mean that Pandora is worth as little as its current price suggests.
Pandora has issues. Too many of its users are freeloaders, as just 7% of its 73.7 million active listeners are premium subscribers. Pandora's popularity has stalled, with its user base 10% below where it was when it peaked three years ago. However, most companies would love to have the power to influence a slowly fading audience north of 73 million, especially the cost-cutting millennials that are hard to reach through conventional marketing. Pandora's turnaround will take some time, but it wouldn't be a surprise to see it get bought out sooner rather than later.
LendingClub: Down 34%
Peer-to-peer lending was a hot niche a few years ago, but LendingClub has flopped since going public three years ago. You have to go back nearly two years to find the last time the shares weren't trading in the single digits. LendingClub's latest hit came earlier this month when it hosed down the guidance for the current quarter that it had provided just a few weeks earlier.
The good news is that LendingClub sees long-term net revenue growth of 15% to 20% The next few quarters may get rocky judging by the revision, but unsecured online lending remains a growing market. LendingClub is using tech to provide both borrowers and investors with attractive rates, and the platform should get even better over time as credit algorithms improve in assessing risk levels. Many analysts lowered their price targets following last week's revised outlook, but most of them are perched at points well above where the stock is at now.