Tech Sell-Off: 2 Beaten-Down Growth Stocks With 234% to 284% Upside, Says Wall Street

Earnings seasons tend to throw up the occasional surprise, but the current one has been particularly action packed. Many high-growth technology stocks have suffered steep declines since November 2021, and they're accelerating as those companies report their results, even in cases where those results have beaten expectations.

For investors, it's always important to adopt a long-term outlook -- but that's especially true during periods of market volatility -- because history suggests it's the best way to generate positive returns.

With the stock of Affirm (AFRM -2.08%) and Redfin (RDFN -0.74%) down 78% and 76% from their all-time highs, respectively, now might be the time to build positions for the years to come, particularly given Wall Street's lofty price targets. 

Image source: Getty Images.

1. Affirm: implied upside of 234%

Buy now, pay later (BNPL) is a rapidly growing segment of consumer finance. Its small scale installment-based lending approach is designed to disrupt the credit card model by targeting merchants rather than consumers. Online stores can integrate Affirm with their checkout, giving customers an option to finance their purchases without the need for existing credit.

Affirm has two blockbuster deals with Shopify and Amazon, which could increase its gross merchandise value by more than 6,000%. But investors were shaken by Affirm's recent fiscal second-quarter earnings report, after the company had a wider loss than expected and offered softer guidance.

In addition, Affirm's allowance for credit losses climbed 34% to $158 million in the last six months, which is a rapid rate of increase since total loans held only grew by 19%. But the company kept its allowance for bad loans at 6.6%, in line with the year-ago number, signaling it doesn't expect losses to expand further as a percentage of total loans. 

But Affirm delivered soaring growth in many operational metrics, which is being overshadowed by its plunging stock price. It reported 11.2 million active customers in fiscal Q2, a 148% year-over-year increase, and its deal with Shopify led to soaring merchant growth of 2,026% during the same period, to 168,000 businesses. 

Affirm says it will generate $1.3 billion in revenue for the full fiscal 2022 year, which would represent a 70% compound annual growth rate since 2019, highlighting the company's strong long-term trajectory. And while Wall Street titan Bank of America Securities recently reduced its price target for Affirm stock to $125, that's still about 234% upside from where it trades today. 

Image source: Getty Images.

2. Redfin: implied upside of 284%

Redfin is an innovative real estate company operating in two key segments. Its brokerage business employs 2,485 lead agents and was responsible for the majority of the company's revenue in 2021. And its RedfinNow segment is the company's attempt at iBuying, where it purchases homes directly from sellers and flips them for a profit. 

iBuying is a challenging business that recently saddled Redfin's key competitor, Zillow Group, with enormous losses. When Redfin reported its 2021 earnings on Feb. 17, it showed a gross profit of just $10 million on revenue of $880 million in that segment. It's a tiny margin that puts the company at risk of following Zillow if there's a downturn in the housing market, which is one reason its stock slid 16% after reporting. 

By comparison, Redfin's brokerage business generated $393 million in gross profit on $1.04 billion in revenue. The company has built a level of scale that allows it to charge listing fees of just 1%, much lower than the industry standard of 2.5%. This has saved customers more  $1 billion since Redfin's inception, which is a win-win arrangement for all parties. 

Overall, Redfin delivered revenue above analysts' expectations of $1.88 billion, and it also expanded its share of total home sales in the U.S.

Data source: Redfin. 

While Redfin isn't profitable yet, 2022 is set to be another big year with analysts expecting revenue of $2.55 billion. If it can keep its iBuying business on steady ground by focusing on high-quality properties, the company might inch closer to a break-even result overall.

Analyst firm Truist maintains an $88 price target on Redfin stock, representing a potential upside of 284% from its current price of $22.86. Getting there might feel like a mammoth task given the current market environment, but the company does operate in the real estate sector, which is one of the largest in the world by value.