Investing in the stock market comes with plenty of surprises. Last year, investors navigated their way through the quickest decline of at least 30% in history and relished in the strongest bounce-back from a bear-market bottom on record. In 2021, they're contending with wild swings in some of the market's fastest-growing companies.
While volatility is an unwelcome sight for some folks, it should be viewed as an opportunity for patient investors. That's certainly how the analysts on Wall Street view periods of heightened volatility.
Following the sell-off in fast-growing companies over the past three months, four of the most unstoppable stocks are now bargains in the eyes of Wall Street. If the one-year consensus price targets for these stocks prove accurate, they offer upside ranging from 34% to as much as 51%.
Square: Implied upside of 34%
The first unstoppable company with abundant upside over the next year is fintech stock Square (SQ 2.28%). Square ended the previous week just shy of $208 a share but is expected to advance almost $70 over the next 12 months. This represents a healthy upside of 34% after its amazing 2020.
The Square growth story has two puzzle pieces. First, there's Square's seller ecosystem, which is its most mature operating segment. Square provides point-of-sale devices, analytics, loans, and other assistance to help merchants grow. In the seven years leading up to the pandemic, the gross payment value (GPV) traversing its network rose by an annual average rate of 49%.
The great thing about the seller ecosystem is that it's begun attracting bigger merchants. By the end of March 2021, 61% of its GPV was generated from merchants with at least $125,000 in annualized GPV. That's up from 52% in the first quarter of 2019. Since this is a merchant fee-driven segment, more GPV equates to more gross profit.
The other puzzle piece, and arguably the one that has investors captivated, is peer-to-peer payment platform Cash App. In Q1 2021, Cash App was Square's primary generator of gross profit. This is a segment that allows Square to generate revenue from purchases, bank transfers, investing, and Bitcoin exchange. The latter generates minuscule margins but is responsible for bringing in a lot of new active users. Square could realistically double its revenue every couple of years, thanks in large part to Cash App.
Trupanion: Implied upside of 51%
Even though it's had a "ruff" time since mid-February, companion animal health insurance provider Trupanion (TRUP -0.57%) offers plenty of "paw-tential" in the eyes of Wall Street. Puns aside, analysts believe Trupanion will hit $118 a share over the next 12 months. That'd be up from the $78 it closed at this past week and would represent upside of 51%.
The answer to "Why Trupanion?" is really simple: People love their pets and they're willing to spend big bucks on the well-being of their furry friends. It's been at least a quarter of a century since year-over-year U.S. pet expenditures declined. What's more, the percentage of households that own a pet has increased from 56% in 1988 to 67% at the time of the 2019-2020 American Pet Products Association survey. Shelling out big bucks on dogs and cats is about as surefire a growth trend as you're going to find.
The crazy thing about Trupanion is that it's just scratching the surface with regard to its potential. It ended March with nearly 944,000 enrolled pets (up 37% from the prior-year period), which only represents around 1% of the U.S. and Canadian market. By comparison, 25% of U.K. pet owners have insurance on their companion animals. If Trupanion were to reach that same penetration rate in the U.S., its total addressable market would be $32.6 billion.
Trupanion is also the only major companion animal health insurer with its own software capable of paying veterinary clinics at the time of checkout. That means less hassle for pet owners (about 90% of costs are covered, per the company) and a generally high retention rate among subscribers.
Etsy: Implied upside of 39%
Another unstoppable stock that offers big-time upside following its recent swoon is e-commerce growth stock Etsy (ETSY 4.56%). Wall Street is looking for Etsy to gain $63 a share over the coming year, which equates to an implied upside of 39% relative to where it ended the previous week.
I know what you might be thinking: Why invest in anything retail-related that isn't named Amazon? While Amazon is the undisputed leader in U.S. online retail sales, Etsy offers differentiation that Amazon simply can't provide. Etsy is specifically working with small merchants to create a personalized and customized platform of products.
There's no question that Etsy has been aided by the coronavirus pandemic. The company's first-quarter operating results showed consolidated gross merchandise sales up 132% to $3.1 billion, with net income skyrocketing by 1,048%.
But there'll still be plenty of double-digit growth after the pandemic ends. Etsy is investing heavily in its platform to improve search and make site usability more consumer-friendly. It's also incorporating listing videos on its site to improve engagement and help its merchants succeed. After all, Etsy generates most of its money from merchant ads. If its merchants are successful, it will be, too.
Shopify: Implied upside of 37%
A fourth and final unstoppable stock with exceptional upside is cloud-based e-commerce platform Shopify (SHOP 0.84%). Despite its nominally high $1,085 share price, Wall Street is looking for the company to tack on $400 extra a share over the coming 12 months. If this consensus price target is hit, investors would be looking at gains of 37%.
Like Etsy, Shopify really found itself in the right place at the right time during the pandemic. Whereas brick-and-mortar retailers were upended, businesses that shifted online and into the cloud benefited immensely. With Shopify primarily focused on providing e-commerce solutions to small businesses, it saw gross merchandise value (GMV) accelerate 114% in the first quarter of 2021 from the prior-year period. Then again, keep in mind that Shopify's GMV grew at an annual average pace of 78% over the previous six years. It was thriving long before the pandemic hit.
As noted, this is a platform that's really resonated with small merchants. Over the trailing 12 months, ended in March, 45,800 partners referred a new merchant to the Shopify platform. That was up a whopping 73% from the prior-year period. But at the same time, Shopify is also landing brand-name accounts (e.g., Walmart) and generating a significant portion of its revenue from high-margin, predictable subscriptions.
With Wall Street forecasting a more than quadrupling in revenue between 2020 and 2024, it's tough not to be impressed with Shopify's growth prospects.