Wall Street can be a fickle partner if you're a stock. One moment the market is all into you, and the next, you're getting ghosted. However, when hot stocks go cold, those are also buying opportunities -- if you're confident they will heat up again.
Shares of 2U (NASDAQ:TWOU), DocuSign (NASDAQ:DOCU), and Peloton (NASDAQ:PTON) have slipped recently, but they shouldn't stay down for long. Here's why I think Wall Street will soon start sending them flowers and heart-shaped boxes of chocolates again.
Online education was already a growing niche before the pandemic made it go mainstream. This will be 2U's ninth consecutive year of posting revenue growth of 30% or better. Earlier in 2020, its top-line gains were padded by a market-widening acquisition, but the 31% growth it posted in its third-quarter report two weeks ago was all organic.
2U helps colleges and universities offer online degree programs. It has partnered with 75 institutions of higher learning to offer more than 160 different degrees. The company makes this seamless, and while a lot of educators are just now learning how to make digital learning engaging, 2U has been honing that skill for more than a decade. The stock has shed more than a third of its value since peaking in August. Investors who seem to think 2U is a niche play in the new normal are failing to recognize that it was rocking in the old normal, too.
No one comes close to owning the e-signature market the way that DocuSign does. It has used its leadership in this booming niche to build out a document management ecosystem that goes far beyond merely replacing ink signatures with more convenient digital nods of agency.
I've kicked myself for not investing in DocuSign in the past, and if you're like me -- watching the company blossom into an industry standard after having failed to put a ring on it -- you probably know the pain. Earlier this week, I ran an email search to find the first time that I was asked to sign a DocuSign form. It was a real estate contract from 2015. I couldn't buy DocuSign's stock at the time -- it didn't go public until the spring of 2018. However, the frequency with which I've been asked for my digital John Hancock has only increased over the years. Pull up DocuSign's stock chart and you, too, may see how painful the realization can be that you had front-row seats to the rise of a market disruptor, but didn't profit from the view.
Thankfully for investors, it's not too late. The same stock that went public at $29 two years ago -- and was a 10-bagger when it traded briefly above $290 two months ago -- has fallen back to a little more than $200. The company's financials are still great. Revenue rose 45% in its latest report, with quarterly billings up a hearty 61%.
Peloton's shares have been pedaling in the wrong direction since they hit an all-time high last month. The stock closed out Friday trading 28% below its mid-October high, and most of that slide came in the past week, after highly encouraging news arrived about a vaccine that may help vanquish the COVID-19 crisis.
The traders who sent this stock downward by 20% this week may be missing a few important points. We can start with the vaccine itself, which even in a best-case scenario is still months away from mainstream availability. It will be elderly citizens and at-risk individuals who will receive the first few months of doses, and those are not exactly the core gym-goer demographics.
Peloton's exercise equipment continues to soar in popularity, and demand is outstripping supply. The interactive experience that its connected-fitness platform provides is superior to the in-person experience that it is replacing -- so this company isn't going anywhere, even after your local spinning classes and fitness centers allow safe, mask-free workouts again.
2U, DocuSign, and Peloton are growth companies cranking out top-line bursts of 30% or better. Their stocks will bounce back, because that's what great investments do.