Skyrocketing stocks are probably not on the minds of many investors at this juncture. Many onetime highfliers have lost most of their value, and some of these stocks may still need to find a bottom.
But that massive decline could form a base from which the growth stocks of tomorrow can skyrocket. Pinterest (PINS -0.52%), Dutch Bros (BROS -0.97%), and Shopify (SHOP -2.37%) exhibit such potential.
One of the stocks that has fallen by 75% from its high is Pinterest. It benefited in the early days of the pandemic as more and more users spent time on the site during lockdowns. But as that trend reversed, monthly active user levels stagnated, and investors turned on the stock.
However, it holds an advantage over other social media sites as it relies almost exclusively on individual interests and passions to know a user. It can then use promoted pins to advertise to such users.
Under new CEO Bill Ready, Pinterest wants to apply these abilities more directly to e-commerce, which could dramatically increase average revenue per user (ARPU). That stood at just $1.56 globally in the third quarter of 2022.
Early results point to growth potential. Monthly active users (MAUs), which either fell or remained flat in recent quarters, grew 3% in Q3 compared with Q2. Also, ARPU increased 11% year over year, rising by double digits in every region except for Europe. Assuming management keeps MAUs and ARPU on an upward trend, it could become a screaming buy.
Dutch Bros
Dutch Bros is down around 60% from its post-IPO high in October 2021. And admittedly, one can forgive investors for passing on this stock. In a world where one can buy beverages from Starbucks, Dunkin' Donuts, and many others, its competitive moat may appear narrow.
However, it has stood out with its handcrafted beverages like the Dutch Classic, a cappuccino-based drink with half-and-half and flavoring. It also offers teas, smoothies, lemonades, energy drinks, and other beverages.
Another differentiator is its reliance on drive-thru locations. That sets it apart from Starbucks, which heavily focuses on an Italian coffeehouse experience, and Dunkin', which remains heavily centered on doughnuts despite a rebranding.
Investors may also want to get in on Dutch Bros in the midst of a rapid expansion. The company operated 603 locations in 14 states as of Q3 and intends to expand that footprint to 800 shops by the end of 2023. That growth was a factor in its 53% year-over-year revenue growth in Q3, an increase that occurred amid rising inflation and slowing consumer spending.
Admittedly, economic challenges may affect Dutch Bros somewhat. It estimates about 46% revenue increase for all of 2022 -- excellent probably for most companies but a slightly slower pace than it had been showing. Nonetheless, that revenue growth is still fast enough to make Dutch Bros the coffee stock of choice for a long time to come.
Shopify
Like many tech stocks, Shopify also experienced a massive decline as pandemic-related usage patterns changed. Its stock has dropped more than 80% from its all-time high. Yet, it could eventually recover and exceed that high through a unique competitive approach.
Shopify stays ahead of its competition through an ecosystem that goes well beyond providing a software platform for e-retailers. It offers services such as payments, business loans, and inventory management. And now, with fulfillment services also available, Shopify may be the only feasible option for many e-retailers.
This is notable as most of its software-driven competitors are unlikely to venture outside of their competency in software. Even Wix, one of its largest peers, has contracted with Amazon to provide fulfillment services.
Admittedly, investors are down on the stock as Q3 revenue dropped to 22%, well below the 52% compound annual growth rate for the past three years.
Nonetheless, revenue grew 47% in 2019, and it can probably return to a comparable rate of growth as rates normalize. As businesses of all sizes expand e-commerce capabilities, Shopify will likely become more popular with enterprises and investors alike.
