2 Growth Stocks With 83% to 116% Upside, According to Wall Street

Famed investor Benjamin Graham once made an interesting observation: "In the short term, the market is a voting machine; but in the long run, it is a weighing machine." Put another way, a stock's price on any given day is heavily influenced by its popularity, but the underlying fundamentals ultimately matter more over time.

For that reason, price targets should always be taken with a grain of salt. In general, these forecasts are short-term in nature, reflecting Wall Street's expectations over a 12-month timeframe. However, that doesn't mean you should ignore price targets completely. If nothing else, these figures can help you find companies you'd like to research.

With that in mind, analysts see big gains for Coupa Software (COUP) and Redfin (RDFN -0.74%). So let's take a closer look at both of these growth stocks.

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Coupa Software: 83% implied upside

Coupa specializes in business spend management. Its cloud-based software connects buyers (clients) with over 7 million suppliers, helping enterprises procure goods and services, control employee expenses, and optimize supply chains from a single platform. This end-to-end approach differentiates Coupa from every other product on the market.

In fact, research companies like Gartner and International Data Corporation have recognized Coupa as the procure-to-pay industry leader, citing its ability to create significant value through AI-powered sourcing suggestions, a robust network of suppliers, and deeply integrated payment capabilities.

With that in mind, analysts at Morgan Stanley value Coupa at $381 per share, representing 83% upside from its current price. But if you're still not convinced, consider this: Coupa currently has over 2,000 customers, including Amazon and Walmart, the largest retailers in the world. And since its inception, its platform has powered $2.5 trillion in spend, meaning the company has an incredible amount of data for its AI engine.

Collectively, Coupa's numerous advantages have powered an impressive financial performance.

Data source: Ycharts. TTM = trailing 12 months. CAGR = compound annual growth rate. Note: Q1 2022 ended April 30. 2021.

Coupa is well-positioned to maintain that momentum. The COVID-19 pandemic emphasized the importance of supply chain flexibility, and virtually every business could benefit from more efficient spend management. In fact, Coupa includes over 100,000 companies in its addressable market, comprising a $94 billion opportunity.

Redfin: 116% implied upside

Redfin's mission is to redefine real estate in the consumer's favor. To that end, the company streamlines the home buying and selling process, providing access to brokerage, mortgage, and closing services through a single platform. Redfin also buys homes directly, offering sellers the convenience of a flexible close date and an all-cash offer.

However, Redfin further differentiates itself from other brokerages with its unique business model. Specifically, rather than treating agents as contractors, Redfin hires its agents as employees, meaning they earn a salary instead of a commission. As it turns out, this is a win-win situation. Last year, the median take-home pay for a Redfin agent was twice as high as the industry average, leading to more productivity and greater retention.

At the same time, this allows Redfin to charge home sellers a lower commission fee -- typically 1% to 1.5%, while the industry average sits at 2.5% to 3%. Redfin then uses those savings to refund homebuyers a portion of the purchase price. In 2020, the average refund was $1,750.

In short, Redfin makes real estate cheaper and less complicated. Because of this, analysts at Truist Securities value the stock at $102 per share, suggesting 116% upside from its current price.

Financially, Redfin's performance has been relatively solid in recent years, though its direct buying and mortgage origination businesses have been a headwind to free cash flow. Even so, these efforts are core to the company's vision of becoming an end-to-end facilitator of real estate transactions.

Source: Ycharts. 

Going forward, investors should also pay attention to RedfinNow, the portion of Redfin's business that buys homes directly. Last year, the gross margin in this segment was negative 2.2%, but that number ticked up to 2.9% in the most recent quarter. I expect this momentum to continue, but home flipping is a low-margin business and Redfin faces formidable competition in Zillow Group.