The stock market is in the middle of a roller-coaster earnings season, but wild swings in price are also being driven by multiple factors, including geopolitical tensions related to Russia and Ukraine and the looming prospect of interest rate increases to address rising inflation. Volatility is likely to be the norm, at least for the short term.
All these short-term issues only reinforce the benefits of having a long-term investment strategy. The issues shaking the market right now likely won't be a factor in five years (and beyond). Long-term investors can use the recent declines in price as buying opportunities that can lead to significant rewards in the future.
Small-cap stocks Offerpad Solutions (OPAD 2.01%) and Skillz (SKLZ -0.95%) have crashed 75% and 92%, respectively, from their 52-week highs. And while any company that loses such a significant portion of its value in a relatively short time carries inherent risks, some Wall Street analysts are betting these two stocks can make a comeback.
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1. The case for Offerpad
Offerpad operates in the real estate industry, as a specialist in the controversial iBuying segment. Its business model involves the company purchasing homes directly from sellers, renovating them, and flipping them for a profit. The business model has become controversial because Offerpad's key competitor, Zillow Group, recently ceased the iBuying segment of its operations after incurring heavy losses.
Flipping real estate is a risky business and is subject to myriad external factors that can influence the price of housing. But Offerpad's advantage comes in being selective, as it operates in just 17 specific markets across the U.S., compared to Zillow, which was juggling 35 markets at its peak. By taking a more careful approach, Offerpad was able to generate a contribution profit of $22,900 per home sold in 2021, which was 154% higher than its 2020 figure.
To that end, Offerpad delivered revenue growth of 95% for the year, to $2.07 billion. And perhaps most impressive was the fact it even found a way to be profitable with earnings per share of $0.05, a big swing from the $0.40 loss per share it made in 2020. The company is preparing for even further growth, doubling its team to over 1,000 employees, and unveiling guidance of up to $1.15 billion in revenue during the first quarter of 2022 alone.
Offerpad held 2,650 homes in inventory at the end of 2021, its highest-ever mark at the end of a year. That exposes the company to potential losses if the housing market slides, but it maintains a goal to buy, renovate, and sell properties within a 100-day window, to keep the impact of market forces to a minimum.
Wall Street firm JMP Securities sees big potential rewards for the risks involved, rating Offerpad stock a buy with a $12 price target, representing 167% upside from today's price.
Image source: Getty Images.
2. The case for Skillz
Mobile now represents 52% of global gaming revenue, beating out traditional platforms like consoles and the PC. Developers are in a constant race to create the next big hit, but according to Skillz, only 2% of them will end up with a winning game financially. The other 98% are left with few options to generate revenue, and that's the gap Skillz fills.
The company built a competitive marketplace for users to stake, and win, real money in live tournaments. For developers of games that never make it into the mainstream, Skillz provides an opportunity to earn a slice of the prize pool staked by users in those tournaments, so even if their game lacks a large organic user base, it can still generate income.
While many of the games on Skillz are generic, the company signed a major deal with the NFL in 2021 to run a contest among developers who are now competing to build a mobile football game for the league. It could pave the way for larger titles to build a presence on the Skillz platform to unlock new revenue streams.
Skillz stock has declined by 15% since the company reported its full-year 2021 earnings results on Feb. 23. Despite growing revenue by 67% to $384 million, the company's guidance suggests it may only grow the top line by 4% in 2022, which disappointed investors. But that's because Skillz plans to reduce engagement marketing in an effort to control costs, which it expects will help to chart its path to profitability over the long term.
While the stock's 92% decline from its 52-week high flashes clear warning signs about its risks, analysts at Wall Street bank Citigroup think Skillz could be worth $9 per share. That's 206% higher than the $2.94 it trades at right now. As mobile gaming continues to expand, Citi might be right on the money in the long run.
