With so many stocks trading at a discount in the current environment, it's more important than ever to be discerning about the companies you select for your portfolio. A discounted share price tells you almost nothing about the underlying business. A stock may be trading down for a valid reason, it may be simply following the trajectory of the broader market, or share prices might be influenced by a multitude of catalysts. 

If you're in a position to add to your portfolio in the coming weeks, and are looking to go bargain hunting for quality businesses, here are two that the market is discounting that still have tremendous growth potential to enrich investors in the years to come. 

1. Upstart 

Upstart (UPST 8.92%) is facing a weaker market for its services than in previous years, with consumer demand for loans and the institutional appetite for buying them down due to rising interest rates. But there are several metrics that indicate that the company is still headed in the right direction.

For any investor who's not familiar, the Upstart platform uses the company's proprietary evaluation model, which is driven by artificial intelligence and machine learning, to operate a loan marketplace. It leverages this model and non-traditional data points (like education and job history) as well as traditional ones (the kind you would find in the FICO score model) to gain a more accurate picture of a consumer's creditworthiness. 

In stepping outside the traditional methods of approving or denying loan applications, Upstart has been able to approve 173% more loans while maintaining the same default rate as traditional U.S. banks. When adjusted for the same approval rate as these banks, Upstart's model generates 53% fewer defaults than those institutions.  

Upstart's model is approving fewer loans right now and its institutional partners are taking over fewer loans in an environment where the risk of default is higher and interest rates remain inflated. Still, the platform's automation and accuracy rates continue to improve. At the end of 2022, 82% of all loans processed through Upstart's platform were 100% automated. For small-dollar loans only, 88% of those were completely automated. Management said that Upstart's model had learned as much in the last seven months as in the entire two-and-a-half years before.  

At the same time, Upstart is rapidly building its network of lending partners, even while loan volumes remain depressed. Its auto lending partner network expanded 90% year over year in 2022, while its cohort of bank and credit union partnerships was up 120% at the end of the year compared to the end of 2021. Notably, Upstart also recorded a gross margin of $447 million in the 12-month period. This was not only up 12% year over year, but it was more than four times higher than its gross margin in 2020.  

The stock is trading down 88% over the trailing 12 months, although shares are up 40% year to date. Upstart's continued disruptor potential, powered by its proprietary platform, could make its current share price too tempting to pass up. 

2. Pinterest 

Pinterest (PINS -0.93%) saw share prices jump about 10% since the start of 2023, even as the stock is still down about 5% from 12 months ago. Companies of all sizes and across a range of sectors, from fashion to banking to travel, use Pinterest to advertise to the hundreds of millions of users who scroll the platform each month. Right now, given the macro environment, spending on advertising is down. 

Since Pinterest derives its revenue from advertising dollars, growth has declined much as it has with other ad-centric businesses. In addition, Pinterest had the challenge in recent quarters of facing tough year-over-year comparisons to the heightened period of growth related to the pandemic. The combination of fewer ad dollars flowing, mixed shopping habits by consumers, and fewer people spending time online led to user growth and revenue growth decelerating. Profitability has take a hit as a result. 

Pinterest closed 2022 on a strong note, suggesting that the business's underlying platform remains sticky for both consumers and advertisers even as the broader economy faces choppy waters. Pinterest closed out 2022 with 450 million monthly active users, an increase of 4% from the end of 2021, and a notable increase of 34% from the end of 2019.

The fourth quarter saw the company return to profitability with net income of $17 million, while it generated $877 million in revenue in the three-month period, up 4% year over year. Meanwhile, average revenue per user was up 1% year over year in the fourth quarter and 10% in the full-year 2022 compared to 2021. The company is also leaning into initiatives like a higher volume of video content to draw users and carry them through to purchase, with management noting that 30% of its revenue is derived from short-form video.

Pinterest's return to user growth and its continued ability to effectively monetize its users bode well for its ability to expand its platform, revenue, and profits in conditions where ad dollars are more free-flowing. Investors could look at the current period as an opportunity to buy this stock on the dip, as its long-term growth story appears far from over.