Thus far, 2022 has served as a wake-up call for new and tenured investors that stock market crashes and corrections are an inevitable part of the investing cycle. But when volatility rears its head on Wall Street, so does opportunity.
Historically, it's always been a smart move to put your money to work in high-quality businesses during crashes and corrections. Eventually, sizable dips in the broad-market indexes are always put in the rearview mirror. In other words, patience pays when you own great companies.
Right now, there are three beaten-down growth stocks that select analysts and investment banks believe will rebound over the next 12 months in a big way. Based on a few of the highest published price targets, this trio offers upside ranging from 128% to 178%, according to Wall Street.
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Shopify: Implied upside of 128%
The first growth stock potentially due for a big bounce is cloud-based e-commerce platform Shopify (SHOP 3.33%). Shares of the company have been halved since hitting an all-time high in mid-November. However, this hasn't quelled the bullishness of Mark Zgutowicz of Rosenblatt Securities, who's maintained a $2,000 price target on shares of the company. If this prognostication were accurate, Shopify would return 128% for its shareholders over the next year.
Zgutowicz's optimism primarily boils down to two key points. First, there's the excitement tied to Shop Pay, the company's buy now, pay later option. Even though more opportunity is realized from merchants already within the Shopify ecosystem, Zgutowicz sees ample revenue and gross profit generation emerging from Shop Pay use and payment installments from non-Shop merchants.
Secondly, Zgutowicz believes engagement via the Shopify app isn't being properly accounted for in the current valuation of the company. Even though Shop App is defined as more of a long-term growth initiative for the company, it's hard to overlook the rapid increase in monthly active users driven by this tool.
Speaking of hard to overlook figures, Shopify has also dramatically increased its total addressable market over the past two years. Small businesses, which represent Shopify's core customer, are now considered to be a $153 billion opportunity for the company, up from a previous forecast of $78 billion.
What's more, 86% of the company's revenue derives from subscription services. With strong retention rates, this leads to highly predictable revenue and cash flow.
If you're wondering what's behind the 50% decline in shares in less than three months, look no further than the Federal Reserve and rapidly rising inflation. When the nation's central bank turns hawkish and begins raising rates, it's not uncommon for growth stocks with high valuation premiums to compress. Even with the mammoth opportunity on Shopify's doorstep, its multiples to both sales and profits were in nosebleed territory.
While the long-term thesis for Shopify remains as rock solid as ever, Zgutowicz's lofty price target is likely unreachable over the next year.
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Lovesac: Implied upside of 129%
If small-cap stocks are more to your liking, furniture company Lovesac (LOVE 2.86%) has lost 48% of its value since hitting an all-time high above $95 in June. But according to analyst Camilo Lyon of BTIG, Lovesac can hit $113 a share over the next 12 months. This implies hearty upside of 129%.
Lyon's research note outlining his and his firm's lofty price target on Lovesac predominantly focuses on the company's long-term opportunity and its surprising growth from showrooms and digital channels in the fiscal third quarter.
Typically, the furniture industry is slow growing and boring. It's highly dependent on foot traffic and it features many of the same products from wholesale furniture providers. Lovesac, on the other hand, is challenging traditional furniture stores on two fronts.
First of all, Lovesac's furniture provides function, choice, and eco-friendliness that other retailers and furniture manufacturers can't match. Approximately 85% of the company's revenue comes from the sale of modular couches known as sactionals. These sactionals can be rearranged dozens of ways to fit most living spaces, and there are close to 200 different machine-washable covers for buyers to choose from. Additionally, the yarn used in these covers is made entirely from recycled plastic water bottles.
The other differentiating factor is Lovesac's omnichannel presence. Instead of being solely tied to brick-and-mortar locations, Lovesac was able to shift nearly half of its sales online during the pandemic. It's also forged a number of brand-name showroom partnerships and offers pop-up showrooms to increase brand and product awareness. The result is significantly lower overhead costs than its peers, which has translated into the company hitting recurring profitability well ahead of Wall Street's expectations.
It's rare when a furniture stock presents with a sustainable double-digit growth rate, but that's exactly what you're getting with Lovesac. Though a 129% gain in its share price would be a lot over the next year, it's certainly doable given the company's clear-cut competitive advantages.
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Zoom Video Communications: Implied upside of 178%
A final beaten-down growth stock with some serious upside is cloud-based Web conferencing platform Zoom Video Communications (ZM +0.30%). Shares have tumbled 68% below their 52-week high, yet could rally as much as 178%, according to BTIG analyst Matt VanVliet.
Although VanVliet lowered his firm's price target on Zoom in November, the $400 target still represents one of the loftiest projections on Wall Street. VanVliet has been particularly impressed with Zoom's ability to court larger enterprise customers and anticipates sustained global growth. This was plainly evident in the fiscal third quarter, which featured a 94% increase in the number of customers contributing at least $100,000 in trailing-12-month revenue.
What's particularly impressive about Zoom, other than its ability to court bigger businesses, is how intertwined its solutions have become in the workplace over the past two years. Though it was certainly in the right place when the pandemic began, its Web conferencing solutions have become a mainstay for businesses of all sizes to keep projects and workflow on track. The point being that Zoom's solutions are expected to remain mainstream, even after the pandemic ends (whenever that may be).
Zoom Video's position as the leading Web conferencing provider is also unrivaled. According to Datanyze, Zoom controls a dominant 75% of Web conferencing share. The next-closest competitor, WebEx by Cisco Systems, has a tenth of Zoom's market share. Being the clear go-to for Web conferencing should help the company deliver predictable cash flow.
New products present an opportunity for sales diversification, too. Zoom Phone, a cloud-based alternative to traditional telecommunications, is one such growth driver for the company.
But similar to Shopify, Zoom has come under fire for its high valuation multiple amid the prospect of higher lending rates. Following a protracted pullback, the company is now valued at 33 times forward-year earnings and roughly nine times Wall Street's estimated sales. That's a reasonable price to pay for such a dominant company. Though a price target of $400 may be a bit overzealous within the next year, "up" does seem to be where Zoom's shares will eventually head.
