If you think stocks are always priced appropriately, think again. While the so-called efficient market hypothesis may be correct in the sense that all information is always quickly disseminated, that doesn't mean analysts and investors always properly interpret that information. Every now and then, things can get a bit squirrely.
With that as the backdrop, here's a rundown of three stocks that Wall Street isn't in love with but arguably will be sooner or later. You can step into them right now on the cheap if you're patient enough to let them pan out.
There's no denying Pinterest's (PINS 1.30%) business has been difficult to evaluate since its launch back in 2010. Most people understand the company sells ad space. What many people may still not grasp, however, is the appeal. Pinterest is simply a way consumers can "pin" pictures and website links to a virtual bulletin board and then share those boards with other Pinterest users with similar interests. Never even mind the fact that the company's interest in monetizing the platform seemed tepid at first and has only graduated to moderate interest in the meantime.
As it turns out, this strange form of social media has its place; it just took a pandemic that kept people shut-in at home to convince enough of them to give it a try. As of the end of 2022's first quarter, 433 million users were checking in at least once a month. That monthly active user figure is down 9% year over year, but it is also in comparison to highly elevated user totals in 2021 when the pandemic was still keeping many from getting out and socializing in groups. People were bound to use the web a little less often once pandemic-related social restrictions eased. The tough year-over-year comparisons to 2021 will eventually go away and more non-COVID-19-affected growth patterns will return as efforts to get the pandemic under control continue.
Better still, Pinterest spent the better part of the pandemic beefing up its monetization potential. Last July, for instance, Pinterest launched shoppable "pins" allowing pinners to make money using their boards. In April of last year, the platform gave content creators control over how -- or even if -- their content can be shared.
These are just a couple of reasons analysts are modeling revenue growth of 16% this year and nearly 22% next year, even if most investors aren't currently pricing the stock as if this growth were in the cards.
Shopify (SHOP 1.08%) may not be a household name. There's a good chance, however, that you or someone in your household has used its service without even knowing it.
Simply put, Shopify helps retailers and merchants develop their own e-commerce operations. While many online sellers have been content to use Amazon as their preferred selling platform, the e-commerce behemoth is seeing problems linked to sheer size and hyper-competition on its platform (even among its third-party sellers). Besides, as the e-commerce arena continues to mature, more and more merchants are realizing they may be better served by doing their own thing anyway. There's much to be said about having complete control of a consumer's online shopping experience and just as much to be said for solely owning any corresponding customer data that is collected.
Shopify's recent results underscore this growing realization. Last year's revenue of $4.6 billion was a 57% improvement on 2020's top line, and this year's sales are on pace to grow to the tune of 26% before reaccelerating to a clip of nearly 30% next year.
And that still only scratches the surface. Small business payroll company SurePayroll estimates that three-fourths of the small businesses in the United States alone don't yet offer online shopping. They'll have to eventually and probably sooner than later. That bodes well for Shopify.
Most investors still aren't terribly impressed, allowing shares to slide all the way from December's (split-adjusted) high around $176 to their current price near $33. Analysts aren't exactly embracing this stock; a slim majority of them only rate the stock a hold after collectively dialing back their consensus price target from nearly $100 early in the year to around $50 now.
Give it time though. This is one of those tickers where analysts have arguably been guessing where it's going rather than suggesting what it's actually worth. If the stock gets the right bullish nudge, the analyst community could quickly reinflate its valuation views for the better, lifting the stock as a result.
3. Palantir Technologies
Finally, add Palantir Technologies (PLTR -0.03%) to your list of growth stocks Wall Street is erroneously looking right past.
Palantir makes specialized data-crunching software. Namely, its core products help organizations make smart decisions using a massive amount of digital data. California's utility company PG&E relies on Palantir Technologies' Foundry platform to optimize its power grid, for example. Other uses of its tech include the automated analysis patent portfolios in order to make better-informed investment decisions. The U.S. Army even recently tapped Palantir to develop a new kind of combat management system at least partially powered by artificial intelligence and machine learning. There's not a lot the company can't do if it can be done with computers, and Palantir has the growth to prove it. Last year's top line of $1.54 billion was up 41% versus the previous year, and the company projects sales growth to the tune of 29% this year as well as next year. Earnings are expanding at a comparable clip.
This hasn't helped the stock much of late. Analysts essentially view it as a name to hold rather than buy, and even though the stock has rallied since logging May's low, these professionals continue to scoot their consensus target lower. Indeed, the current consensus price near $11 is now just a tad above the stock's present price near $10 per share.
As was the case with Shopify, a time may be coming when analysts have little choice but to start revising their targets to numbers more aligned with the actual market reality for this ticker. That could prove catalytic in and of itself.