Understanding when the market is reacting to short-term sentiments about a company, rather than long-term problems with its performance, is a key skill for investors. Every time the market gets a stock wrong, you have an opportunity to profit by buying and holding it, and that's especially true for growth stocks that are likely to flourish again in due time.

With that in mind, let's examine two temporarily down-on-their-luck growth stocks that are positioned to rally after they execute on their core strategies a bit longer.

1. Ginkgo Bioworks

Ginkgo Bioworks (DNA 0.70%) saw its shares fall by 69% over the last 12 months, but that could be just the opening that value-hunting investors need to start a position.

Unlike other biotech stocks, Ginkgo's business model is closer to that of a semiconductor foundry than a drug developer. Its manufacturing platform takes genetic templates for economically useful microorganisms like yeast that are provided by customers; it optimizes the blueprints using genetic engineering, and cultures the freshly engineered cells at scale. Next, it harvests the molecules of economic value that the microorganisms are designed to produce, such as the active components of pharmaceutical drugs, and passes them on to customers.

If that workflow seems enormously complicated, you've precisely identified the reason why clients are interested in working with the company to begin with; it's very difficult to do all that with a semblance of efficiency.

Of course, that difficulty is also why Ginkgo isn't profitable yet despite its trailing-12-month sales of $527.9 million. It's also why the stock is risky to invest in for as long as the company continues to burn money. In the long run, management hopes that its heavy investments in automation, via robotics and artificial intelligence, will enable it to serve demand at a low cost. For now, revenue growth is likely to continue. Ginkgo added as many as 60 new manufacturing programs in 2022, nearly double 2021's total.

And that means its low valuation is an opportunity. On average, the biotech industry's price-to-sales (P/S) ratio is 5.7, which is a touch higher than Ginkgo's multiple of 5.2. But most other public biotech businesses can't just grow their revenue from quarter to quarter by acquiring new customers, as they need to go through clinical trials to get their medicines approved for sale. In that context, Ginkgo's P/S rati looks a bit better, because its service can expand organically and with spending on marketing.

2. CRISPR Therapeutics

CRISPR Therapeutics (CRSP -0.88%) shares are down by around 20% since mid-February of 2022, but there's reason to believe that stockholders won't need to wait too long before seeing it fly. This stock is cheap because the company is working with Vertex Pharmaceuticals to get a new therapy called exa-cel out the door and onto the market in the near future.

Exa-cel is a cell therapy which can treat two heritable blood disorders: beta thalassemia, and sickle cell disease. The biotech and its partner are wrapping up materials for their regulatory submission in pursuit of approval by the end of the first quarter. Assuming all goes as planned, exa-cel could be treating patients and making money for investors by this time next year.

The last big influx of revenue for CRISPR Therapeutics was in 2021, when Vertex paid it $900 million to continue work on exa-cel. Since then, because it has no medicines on the market, it's had hardly any revenue. That means that if exa-cel gets approval, its shares will fly. The rate of revenue growth in the following quarters will be stupendously high, perhaps for as long as a few years.

There's a chance that regulators will decline to grant exa-cel the right to be commercialized. As bad as that outcome would be for the stock's price, it wouldn't mean total defeat for the company. After all, it has a smattering of other pipeline programs in lucrative fields like immuno-oncology, a powerful ally in Vertex, and around $1.9 billion in cash and equivalents in the bank.

Those factors mean CRISPR Therapeutics will have plenty of chances to hit a home run. And for biotechs that haven't yet marketed a medicine, having a big margin of safety is about as good as it ever gets.