The market hasn't been kind to growth stocks lately, but that doesn't mean that the space is devoid of opportunities for the long-term investor. On the contrary, for investors with a long-term buy-and-hold strategy and the patience to wait out the near-term volatility while adding to a diversified portfolio, this could be an ideal time to load up on beaten-down growth stocks with remarkable future potential.
On that note, let's take a look at three such stocks that the market has severely discounted over the last year but that Wall Street thinks could soar by 50% or higher in the next 12 months.
1. Upstart
The undercurrents driving the broader lending market have a significant impact on Upstart's (UPST 1.66%) business. Given the present concerns surrounding current macro conditions, including nosebleed interest rates and ongoing fears of a recession, it's no surprise that investor sentiment has resulted in a notable drawdown of the stock's price in past months. While there's no denying that the immediate economic landscape presents unique challenges for companies tied to the lending industry, Upstart's proprietary platform gives it an edge that should enable it to make a strong comeback as the economy recovers.
Upstart's AI-driven platform relies on more than 1,000 different data points, including non-traditional factors like an applicant's income and education, to determine whether or not to extend a loan to a consumer. This platform not only enables Upstart to extend credit to consumers that might otherwise be left out of the lending industry, but it can do so with a far higher degree of accuracy by adjusting for risk measures and default potential. This aspect of Upstart's platform has led to declining loan volumes, and the consumers that are being approved for loans are being offered far higher rates of interest right now.
However, as the economic climate improves, Upstart's platform should be able to regulate accordingly while still expanding credit access to responsible consumers. In other words, if its algorithm is approving fewer loans and assessing higher interest rates in response to the present macro situation, it should also be able to realign to meet the demands of a more favorable environment where interest rates are down and consumer credit is looking up.
Lending partners are recognizing this potential and still flocking in droves to Upstart's platform. The company's network of banks and credit unions soared nearly 170% year-over-year in the most recent quarter. Upstart also continues to expand its footprint in lending markets like auto loans and small business loans. Currently, Wall Street pegs Upstart's high upside potential for the next 12 months at around 73%.
2. Zoom
Zoom (ZM 1.25%) may not be the high-flying investment that it was in the earlier days of the pandemic, but that doesn't mean the stock has exhausted its growth runway yet. The company remains a premier provider of conferencing software and solutions used on a daily basis by individuals and businesses around the world. The key source of growth for Zoom over the long term lies in its enterprise partnerships with larger organizations, and this is an area in which the company is continuing to mark strong, successive wins.
In the most recent quarter, Zoom's overall revenue jumped 7% year-over-year, but its enterprise revenue soared by approximately 20% from the year-ago period. Enterprise customer retention continues to be strong, with average monthly churn declining to 3.1% in the most recent quarter, compared to 3.7% in the same quarter last year. Meanwhile, the recent quarter saw Zoom's cohort of enterprise customers rise 14% year-over-year, and its trailing 12 month net dollar expansion rate for these clients skyrocket by 117%.
Bear in mind, unlike many high-growth tech businesses, Zoom is still profitable. The company reported net income of $208 million in the first nine months of the fiscal year just ended, along with revenue of $3.3 billion in that same nine-month period.
Even as businesses are scaling back on expenses right now, Zoom's suite of software and solutions remains an indispensable tool for millions of customers -- and, importantly, its growing list of enterprise customers, which now tops 209,000. This gives it an advantage over the long term, even though the current environment may continue to prove challenging. Some Wall Street analysts think that Zoom could soar by as much as 63% in the next 12 months alone.
3. Teladoc
Teladoc (TDOC -0.23%) was a pandemic darling that has since fallen significantly as investors have turned away from stay-at-home stocks and growth-oriented businesses in droves. The healthcare giant has also faced some troubles of its own, as massive writedowns (to the tune of about $10 billion) in the first half of 2022 stemming from its previous acquisition of Livongo ballooned its net losses and made some investors head for the hills.
Teladoc seems to be coming out of this period, however, and it may be an ideal time for investors to take note. In the most recent quarter, the company shaved its net loss to $74 million. While this might still seem high, this was compared to a net loss of $3.1 billion in the prior quarter. Revenue growth is still strong, with the company growing its top line 20% to $1.8 billion in the first nine months of 2022.
Teladoc is also seeing key progress in core segments of its business, including its virtual primary care service Primary360, which is in its early stages of deployment within the broader telehealth space, and its chronic care wing. In the third quarter Teladoc reported that members enrolled in at least one of its chronic care programs jumped 9% from the same period in 2021.
The company's far-reaching leadership within the multi-billion-dollar telehealth space, combined with its diverse business model that enables consumers to access everything from mental healthcare to specialist solutions from the comfort of their home, is an advantage that few have been able to penetrate. Over the long-term, even as newer entrants break into the space, Teladoc should be able to retain and build upon its advantage to deliver continued business growth and returns to shareholders. Current Wall Street estimates give the healthcare stock a 12-month upside potential as lofty as 93%.
