Please ensure Javascript is enabled for purposes of website accessibility

2 High-Growth IPO Stocks to Buy

By Jennifer Saibil - Jun 7, 2021 at 9:44AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Both of these companies are changing their industries and have huge potential.

IPO stocks are usually in high demand. Buying early is your best chance of making the highest gains on an investment, and that often drives up a price quickly.

But there are two points to consider with this approach. One is that retail investors rarely get in on the IPO price, which typically goes to commercial investors. By the time most retail investors have the opportunity to buy, the price is often much higher, even doubled from the IPO price. IPO buying frenzy eventually settles down, bringing the price and any gains with it. If you buy into the hype and invest at the high, you'll lose any gains in the near term.

Four people on an Airbnb hiking experience in Morocco.

Image source: Airbnb.

The other point is that investors will never be able to time the market, and if they try to, they're bound to lose. Prices fluctuate according to various factors, usually uncontrollable. It only hurts to try to get in at the lowest price point, even though you might sometimes hit the target. Instead, your best chance of success is to buy stock in companies with the potential for high growth. Depending on your appetite for risk, you should look out for a low entry point.

Two recent IPOs that have seen their share of volatility are Airbnb (ABNB -5.37%) and Upstart Holdings (UPST -8.58%). Airbnb stock is trading well below its 52-week high, and Upstart stock is trading close to its high. But both are fantastic options for long-term high growth.

The travel revolution

Using Airbnb's platform to find a vacation rental saves searchers time, but even more, it gives vacation-seekers peace of mind through accountability and guidelines. To that end, the company recently upgraded its user agreements to provide a better experience for both hosts and guests. CEO Brian Chesky said "The lines between travel, living and working are blurring and we are upgrading our service to make it easier for people to integrate travel into their lives."

That line-blurring has been a great tailwind for Airbnb, which was battered by COVID-19. After serious sales drops in 2020, the 2021 first quarter showed a huge comeback. While travel is still limited, the company is benefiting from domestic travel and longer stays, some of which wouldn't be possible in the traditional travel sector. Airbnb's revenue increased 5% year over year in the first quarter, as opposed to, for example, Marriott International's 51% revenue decrease in the same period and Hilton's even bigger drop. Many hotels were closed for that entire period, but Airbnb locations were mostly open.

There will always be a place for hotels, but there are so many advantages that Airbnb has over traditional travel, and those are what will keep propelling the company forward. One is its rentals in far-flung locations that most hotels don't reach. Another is its wider range of prices. Still another is the ability to recruit new hosts and expand its room count much faster than a hotel company can build new hotels. And there are more.

In other words, there's so much potential. Airbnb stock is about flat from its first-day closing price, despite it's first-quarter recovery, making this an optimal time for any type of investor to purchase shares. 

Three people in an office setting looking at a laptop.

Image source: Getty Images.

The artificial intelligence revolution

Upstart stock had a slow start when it debuted on the stock market in December 2020, but it has since shot up nearly 400%. That's due to its powerful, AI-driven credit evaluation model that can change the bank-lending business.

The company matches individual risks to outcomes more effectively than standard credit reporting through machine learning. This allows banks to approve more loan applications, putting more money in their coffers, while reducing risk and saving money. No wonder more banks are joining the client count and sales are soaring.

In the first quarter, sales increased 90% year over year, and loan originations increased 102%. Even better, the company became much more profitable, with net income increasing from $1.5 million to $10 million. After the report, Upstart raised its revenue guidance for the year by $100 million to $600 million, up from $233 million in 2020.

Upstart's stock price skyrocketed in March after it announced it was acquiring Prodigy, which develops software for auto sales and financing. The auto industry is a huge market, and Upstart's entry into this unexplored area opens a lot more doors.

At this point, Upstart shares are pricey, trading at nearly 142 forward one-year earnings. But investors can expect a lot from the company, and it might deserve your dollars.

  

Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Airbnb, Inc. and Upstart Holdings, Inc. The Motley Fool recommends Marriott International. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Airbnb, Inc. Stock Quote
Airbnb, Inc.
ABNB
$114.76 (-5.37%) $-6.51
Marriott International, Inc. Stock Quote
Marriott International, Inc.
MAR
$161.38 (-2.22%) $-3.67
Hilton Worldwide Holdings Inc. Stock Quote
Hilton Worldwide Holdings Inc.
HLT
$135.48 (-2.37%) $-3.29
Upstart Holdings, Inc. Stock Quote
Upstart Holdings, Inc.
UPST
$28.46 (-8.58%) $-2.67

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
397%
 
S&P 500 Returns
128%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/20/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.