When a company loses more than 90% of its stock value, it can be easy to assume that it might be under some structural stress. But in the current market environment, with technology stocks getting crushed over concerns about difficult macroeconomic conditions, investors need to consider other possibilities as well.
With inflation and interest rates on the rise and forcing many consumers to cut back on spending, the bottom lines of all sorts of businesses will take a hit. But some stocks, including Upstart Holdings (UPST 0.79%) and GoPro (GPRO -1.12%), are unlikely to take a hit that justifies their shares being down over 90% from all-time highs.
It's true that these two companies face some unique challenges in this environment, but they're making positive moves for the long term, and that's what investors should be focusing on. Here's why now might be a great time to buy their stocks hand-over-fist.
1. Upstart: Revolutionizing the lending business
Lending money is an age-old concept, but occasionally new ideas get enacted that revamp the way it's done, especially in this age of technological innovation. For the last 30 years, Fair Isaac's FICO scoring system has been the standard way banks assess the creditworthiness of a potential borrower. But Upstart says FICO is outdated, and it's using artificial intelligence (AI) to change how creditworthiness is determined.
Upstart built an algorithm that measures as many as 1,600 data points on an individual to more accurately assess his or her capacity to pay back borrowed money. This AI process delivers an instant decision in about 73% of cases, which saves time and money for lenders.
When credit conditions tightened this year as economic conditions deteriorated, investors panicked and sold Upstart stock heavily. They worried that company's assessment models were built during good times and hadn't been battle-tested in a downturn or a recession. Upstart management eventually responded, making a presentation that pointed out its assessment models are performing in line with expectations.
Apparently, the new data was good enough for lenders. As of Q2, the company has 71 banks and credit unions as well as 640 car dealerships using its lending assessment platform. Those figures represented a year-over-year increase of 184% for banks and 221% for dealerships, so it's clear Upstart's partners are still willing to adopt its AI-driven approach.
The company's revenue has slowed somewhat because consumers are requesting fewer loans, but loan issuances are still expected to grow by 5% in 2022. It's a far cry from the 264% growth Upstart delivered in 2021, but that gain came in a temporary very low-interest rate environment. Upstart is a long-term investment story, and its eventual market opportunity is estimated at $6 trillion in annual loan originations if the platform eventually expands to assess mortgage and business loan applications. With Upstart stock down more than 93% from its all-time high, this might be a chance to buy at a rock-bottom price.
2. GoPro: A turnaround for the ages
GoPro is the longtime leader in the action camera industry, and the 94% decline in its stock price started years ago. GoPro stock hit an all-time high of $93.85 shortly after becoming a publicly traded company in 2014, but when its one-dimensional hardware business began to struggle for growth, the stock fell and it's now languishing at just $5.33 per share.
More recently, the company started turning things around by unlocking new revenue streams from subscriptions and by selling more of its camera hardware directly to the consumer (relying less on large retail chains and retaining more of the profits). Not only has GoPro returned to growth, but it's even generating positive earnings again.
In the second quarter of 2022, the company had over 1.9 million paying subscribers, which represented a 65% year-over-year jump. For about $50 per year, these customers receive exclusive product discounts, unlimited cloud storage, and live streaming capabilities directly from their GoPro camera. The company believes it could generate $100 million in revenue from subscriptions in 2023, and with a gross margin of up to 80%, much of that revenue could flow to the bottom line as profit.
GoPro is gearing up to release a new desktop-based editing software product in 2023, which could add yet another high-margin subscription revenue stream.
Analysts expect GoPro to deliver $0.75 in earnings per share in 2022, which is a dip from the $0.90 it reported in 2021, mainly because of the slowing economy and weaker consumer sentiment at the moment. Still, it would place GoPro stock at a price-to-earnings multiple of just seven right now, which is a 69% discount to the Nasdaq-100 technology index's multiple of 23.
It implies GoPro stock will need to triple just to trade in line with the broader tech sector. Given the company is no longer experiencing losses, it's a far less risky investment, and its current valuation might prove to be far too cheap when looking back a few years from now -- especially since earnings are expected to return to growth as soon as 2023.
