The recent decline in growth stocks has led to more fizzle than sizzle from many investors' portfolios. Many former high-flying stocks have lost more than half of their value since November.
The declines have brought opportunities to those looking to put cash to work, as they can now buy some fast-growing companies at a massive discount. The lower prices of stocks such as Sea Limited (SE 0.05%) and Upstart Holdings (UPST 2.76%) offer such opportunities.
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1. Sea Limited
When investors see the successes of e-commerce juggernauts such as Amazon or Alibaba, they might miss what's happening in e-commerce in other parts of the world. Sea Limited operates its Shopee platform is dominating Southeast Asia and expanding into countries such as Brazil and France. It is working hard to become a major e-commerce presence in multiple regions of the world.
For all of the focus on retail, Sea Limited is a conglomerate that also operates a gaming publisher, Garena, which is its most profitable segment. It thrives, in large part, due to the success of its freemium battle royale game called Free Fire.
Its fintech segment, SeaMoney, caters to customers in the developing world. SeaMoney can serve customers without bank accounts, a segment overlooked by fintech giants such as Block.
The company has also achieved triple-digit growth rates despite inflation. Sea reported $6.7 billion in revenue in the first nine months of 2021, 140% more than in the same period in 2020. E-commerce revenue for the first nine months surged by 175% year over year, while digital-entertainment revenue moved 120% higher over the same period.
The company raised guidance for full-year 2021 in the e-commerce segment. It predicts GAAP revenue of between $5 billion and $5.2 billion, a 135% growth rate at the midpoint. This didn't include a forecast for digital entertainment, and analysts expect revenue growth to slow to 48% in fiscal 2022.
Despite three-year stock price growth of more than 1,000%, the price has fallen by close to 60% since hitting a high in October.
Its price-to-sales (P/S) ratio has fallen to 9, down from about 30 one year ago and comparable to its peer MercadoLibre, which sells at a similar multiple. Such a valuation could make Sea Limited an attractive buy despite somewhat slower revenue increases.
2. Upstart
Upstart has built its growth on disrupting the lending industry. Instead of relying on FICO scores, a measure that leaves millions of Americans without access to credit, Upstart relies on artificial intelligence to make many of its loan decisions.
It began offering unsecured personal loans at fixed rates (offered in partnership with various banks) and has since diversified into backing auto dealerships by providing customers with car loans. The company has made plans to enter the mortgage-loan business in the near future.
As of the end of the third quarter of 2021, Upstart had worked with banking partners to originate more than 1.5 million loans. Almost 363,000 of those loans took place in Q3 alone. Auto lending has expanded rapidly. Most of its car loans had taken place in one state in Q3 2020. By Q3 2021, however, that business had grown to over 4,000 auto loans in 47 states.
Rising interest rates and a generalized tech sell-off have weighed on the stock. Despite some recovery in recent days, Upstart stock sells at more than a 70% discount from its 52-week high.
Still, its $544 million in revenue for the first nine months of 2021 was 271% higher, compared with the first three quarters of 2020. It has already become profitable as it reported a net income of $76.5 million in the first three quarters of 2021. It earned about $5 million during the same period in 2020.
Upstart reports fourth-quarter and full-year 2021 earnings on Feb. 15. The company previously forecast revenue between $255 million and $265 million for the quarter, a 200% increase at the midpoint, if that prediction holds. While that means some slowing down, 200% still amounts to sizzling growth.
Upstart's P/S ratio of 16 makes its stock significantly more expensive than slower-growing traditional banks. However, that multiple has fallen from a level of over 60 last fall.
Given this discount and the continuing rapid revenue growth, one could argue that the consumer finance stock has become significantly oversold.
