Stock prices can go up and down for a number of reasons in the near term, but over many years, stocks tend to follow the underlying growth of the company.

While Alibaba (NYSE:BABA) and Stitch Fix (NASDAQ:SFIX) have seen their share prices crater this year, both companies continue to post solid operating results. Here's why these growth stocks could be bargains at current prices.

A shopper holding a credit card while using a laptop.

Image source: Getty Images.

1. Alibaba: The leading e-commerce platform in China

Alibaba dominates China's e-commerce market -- the largest in the world -- with a combined 56% market share across its Taobao and Tmall marketplaces. The company also operates a growing physical store footprint, including its Freshippo and Sun Art supermarkets. Revenue has steadily climbed over the last five years, reaching $125 billion over the last four quarters. 

Alibaba reported 29% year-over-year growth in revenue in the third quarter, or 16% excluding the acquisition of Sun Art in 2020. For a stock trading at a modest valuation of 15 times expected earnings, the third-quarter earnings results look solid, but the regulatory environment in China has taken over the investment narrative in 2021.

Regulation has always been a risk for companies in China, but the recent scrutiny on large internet platforms has investors worried. Within the last month, China's competition regulators imposed new fines on top tech companies, including Alibaba, Tencent, and Baidu. This round of regulatory tightening has lasted longer than previous episodes, but the worst could be over, which could spell big upside from these lows.

Despite Alibaba's dominant position, it continues to expand in China and worldwide to win more customers. Its annual active customer base is already massive at 1.24 billion globally at the end of Q3. Its Taocaicai community marketplace was a notable standout, growing gross merchandise volume by over 150% year over year last quarter and expanding operations to nearly 200 cities. 

Management is on a mission to reach 2 billion customers worldwide over the long term across all its retail marketplace businesses, and it seems on pace to get there. While the recent slowdown in consumer consumption could weigh on revenue growth in the near term, investors can buy this top e-commerce stock at a cheap valuation of just 15 times 2021 earnings estimates. Buying shares at these levels could pay off once the headwinds subside, considering that the stock was trading as high as 30 times earnings a year ago.

An assortment of women's tops and other apparel items available at Stitch Fix.

Image source: Stitch Fix.

2. Stitch Fix: A leading personalized apparel service

Stitch Fix is aiming to revolutionize the time-consuming experience of shopping for clothes. Its main advantage is a decade's worth of data and a growing client base of 4.1 million that informs its recommendation algorithms. 

Active clients grew 18% year over year in the most recent quarter and revenue per client increased 4%, leading to an overall revenue gain of 29% for the fiscal fourth quarter (which ended in July). This follows strong top-line increases of 10% in the fiscal first quarter, 12% in the fiscal second quarter, and 44% in fiscal Q3. The acceleration is an indication of pent-up demand coming out of the stay-at-home environment in 2020.

What's more, Stitch Fix is in the process of leveraging its deep data pool to improve the experience for new clients. Management believes there is substantial upside to its long-term addressable market with the Freestyle service, on top of opportunities with new product categories, such as shoes, loungewear, and sleepwear.  

When new users sign up, they fill out a profile that gives Stitch Fix basic data on style preferences, and they instantly receive recommendations. The ultimate value proposition here is that Stitch Fix has data on customers' fit and size preferences, which removes a key source of friction when shopping for clothes online.

A customer who buys something from Stitch Fix can always send back styles they don't like, but no longer do customers have to wonder whether an item is going to fit. That's a real game-changer, and the growth of the service shows that Stitch Fix is already gaining market share in an industry that is only growing at a single-digit rate.

The company's success hasn't translated to the stock performance, which has spiraled downward this year. The underperformance can be traced back to supply chain bottlenecks plaguing retailers and how that might affect Stitch Fix's near-term earnings results. However, with the stock price down about 50% in the last six months, investors can buy this retail disruptor at a bargain price-to-sales ratio of 1.3. 

Stitch Fix is building a sophisticated shopping experience, and most importantly a solid brand, in a growing e-commerce market. While I wouldn't buy a large position in this volatile stock, I believe planting a small seed today could lay the foundation for a profitable investment down the road. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.