Looking for stocks that could push your portfolio through the roof? Scooping up beaten-down growth stocks from the floor is one way to drive outsized gains over the long run.
This year, the Federal Reserve's efforts to slow down inflation have been a disaster for shares of early stage businesses in a high growth phase. That means there are lots of beaten-down growth stocks to choose from.
These stocks have been beaten down in response to rising interest rates and general economic uncertainty. Their underlying businesses, though, are growing by leaps and bounds.
Image source: Getty Images.
Here's why it's probably just a matter of time before the market starts giving these stocks a lot more appreciation.
1. The Trade Desk
Shares of digital advertising specialist The Trade Desk (TTD 4.15%) soared when COVID-related lockdowns forced us to spend a lot more time in front of our devices. Less demand, plus a market worried that a recession could limit ad spending in general, has pushed the stock down 47% from the all-time peak it reached last year.
Unlike the largest digital advertising businesses, Meta Platforms and Alphabet, The Trade Desk doesn't own any content or ad inventory. Instead, The Trade Desk operates a demand-side platform where buyers come to create and manage their ad campaigns.
We can see The Trade Desk gaining on the digital ad industry's largest players. During the second quarter, The Trade Desk reported total revenue that soared 35% year over year. Over the same time frame, Alphabet's total advertising revenue rose just 12%, and Meta reported a 1% decline in total revenue.
The $377 million in revenue that The Trade Desk reported in the second quarter is impressive for a company that started out in 2011. That said, it's still a tiny sliver of the company's addressable market. Global spending on digital advertising is expected to pass $470 billion this year and soar past $786 billion in 2026. With room to grow and a business model that its clients prefer, the sky is the limit for this stock.
2. Lovesac
Lovesac (LOVE 0.55%) is a furniture company with a unique business model that solves a lot of the problems its competitors learn to live with. The company's named after the fancy beanbag chairs that it still markets, but its main business is highly adaptable sectional seating that the company calls Sactionals.
Lovesac customers gladly pay several times more for a Sactional than they would spend on a traditional sofa because they're hyper-adaptable. Since they can be stored in pieces, warehousing Sactionals is far less expensive than storing traditional furniture.
Sactionals are built to grow and shrink with changing family sizes and home sizes. With hundreds of upholstery options, they also adapt to changing decors. This adaptability means updating an old Sactional will always be a better option than buying a new, traditional sofa.
Lovesac's Sactionals business isn't just a concept. It's already generating significant cash flows. In the first half of the year, the company reported a gross profit that worked out to 53% of top-line revenue.
The company is investing heavily to raise awareness for its Sactionals, and it's working. Net sales during the three months ended July 31, 2022 soared 45% year over year to $149 million.
With most of us back to life as normal, this year should be a terrible one for making year-to-year furniture sale comparisons. If Lovesac can grow its top line by 45% under present conditions, it can probably accelerate once economic conditions improve. That makes it a great stock to buy now and hold for the long run.
3. SoFi Technologies
SoFi Technologies (SOFI 4.55%) stock has been crushed by about 78% from the peak it reached last year. Demand for the all-digital banking services SoFi provides soared during the most intense periods of the pandemic. Now that most of us have returned to normalcy, expectations for the road ahead are less enthusiastic.
SoFi got started about a decade ago by refinancing student loans. Now it's a full-service consumer bank with over 4.4 million members. Members can receive an annual percentage yield of 2.5% on their checking and savings account deposits, which is 1.5% more than the bank offered at the beginning of the year. This would pinch profitability, but the rates it receives on personal loans, auto loans, and mortgages have risen much further.
There are a lot of ins and outs to consider, but higher interest rates will most likely improve profitability over the long run, and lending isn't this company's only successful operation. SoFi also owns Galileo, the most popular technology platform that fintechs and other businesses use to quickly set up customer accounts and payment cards.
With a leading consumer bank operation, plus a technology platform that enables over 100 million accounts for institutional customers, SoFi's future looks especially bright.
