Traditional value investing principles encourage generating conservative estimates to help avoid downside risk. However, for companies with stellar management teams and optionality for new business lines, growth can come from unexpected places.  

Upstart (UPST 0.79%) and Wix (WIX -2.00%) are two stocks that might appear expensive on the surface, but underestimating their potential could be a costly mistake.

Upstart

Upstart connects borrowers with lenders through its artificial intelligence (AI) consumer lending platform. While that might sound overly complex, Upstart has essentially created a range of models that can analyze more than 1,000 different variables to identify the optimal interest rate, the likelihood of default or prepayment, and several other characteristics of the borrower. Partner banks or lenders can then provide $1,000 to $50,000 loans to these borrowers in exchange for interest payments. Upstart, as the intermediary, then generates revenue in the form of referral fees. 

Though assessing creditworthiness based on data isn't a new concept, Upstart's models reportedly produce far better results. According to Upstart's annual report, its system generates 75% lower loss rates than other large US banks while also approving 27% more borrowers. If these improved lending results aren't enough validation of the platform's effectiveness, Upstart also just boosted its guidance for 2021 by projecting 114% revenue growth for the year, demonstrating not only higher consumer demand, but the bank's willingness to lend to these borrowers. 

While Upstart still has plenty to prove, there's no reason to think that its superior framework for determining creditworthiness couldn't be applied to other lending areas as well. But it's not just investors speculating on new areas for growth either. Upstart made its ambitions clear last month when it acquired Prodigy Software -- a provider of automotive retail software. In response to this push toward automotive financing, CEO Dave Girouard stated, "Auto retail is among the largest buy-now-pay-later opportunities."

With Upstart's opportunistic ex-Google management team and technology that can be applied across a range of industries, Upstart's 21 times forward revenue multiple might not be as crazy as investors think.

Man taking car keys after auto loan

Image source: Getty Images.

Wix 

Wix, the drag-and-drop website building and hosting platform, has shown a remarkable ability to innovate over the years. For a simple subscription, Wix enables bloggers, photographers, fitness influencers, artists, e-commerce stores, and plenty more to build the website they want thanks to its intuitive and editable custom layouts.

But it's not just subscription fees that Wix collects either. In 2020, Gross Payment Volume across the platform grew 126% to $5.4 billion, as e-commerce spending accelerated. From that spend, Wix collected $53.6 million in revenue -- 382% more than the year prior. Not too bad for having launched Wix Payments less than two years ago. 

In addition to e-commerce, Wix has also been seeing rapid growth within the restaurant category. The number of restaurants using Wix to sell online grew by 143% over the last year, and to help support them Wix went out and acquired digital-ordering software provider, SpeedETab. Features like this not only add useful functionality for subscribers, but also allow Wix to monetize its user base in different ways.

Though Wix already boasts 5.5 million premium subscribers, CEO Avishai Abrahami expects that the company could power 50% of all new websites within five to seven years. While this might seem like an optimistic goal, if Avishai Abrahami is ultimately right and Wix serves as the home to half the new websites on the internet, it will give rise to new methods of monetization.

With a market cap of $16.9 billion, Wix currently trades at 13 times its next 12-month revenue. For a business that should have an abundance of new growth avenues as it adds more users, this price tag might not be as expensive as it first appears.