"Buying the dip" -- or purchasing stocks after prices have dropped -- is a time-honored strategy that many an investor has tried. When done correctly, buying the dip can be a great way to invest in great stocks trading at a discount. However, this strategy only works if you buy solid companies with good long-term outlooks and not just those with fallen stock prices.

Here are two growth stocks with bright outlooks, but have fallen considerably in the past 12 months -- and so you should consider adding to your portfolio.

Cloudflare

It's been an impressive 2023 for Cloudflare (NET -0.80%), which has seen its stock jump over 36% year to date. However, when you zoom out, it's been a rough past 12 months as the company has lost close to half its market capitalization, bringing it near its late-2020 prices. This recent sell-off may present a good time to begin a stake in Cloudflare.

Many people have no idea what distributed denial-of-service (DDoS) threats are, but that's a good thing. DDoS attacks attempt to disrupt and take down websites and apps by overwhelming them with fake traffic and service requests. Without companies like Cloudflare -- which estimates it blocks around 136 billion cyberattack instances daily -- the internet as we know it would be alarmingly more vulnerable.

Cybersecurity has increasingly gone from a "we should probably have this" to a "we absolutely must have this" expense for many companies. It's virtually indispensable for any company operating online, and the financials of top cybersecurity companies are beginning to reflect that need.

In last year's fourth quarter, Cloudflare produced $275 million in revenue, up 42% year over year. Its full-year revenue totaled $975 million, bringing its compound annual growth rate (CAGR) from 2017 to 2022 to more than 48%.

NET Revenue (Quarterly) Chart

DATA BY YCharts.

Maybe more important than the revenue growth itself is just how fast the company is developing its large customers segment (companies with more than $100,000 in annual revenue). In 2020, Cloudflare had 828 such customers; in 2022, it had 2,042, representing a 57% annualized growth rate. This is significant because over 60% of its revenue comes from large customers.

The global cybersecurity market was just under $140 billion in 2021. By 2029, it's projected to reach over $376 billion. As the cybersecurity pie as a whole gets larger, Cloudflare should see considerable growth by, at minimum, keeping up with the industry growth rate (13.4% CAGR by these projections).

Block

Like many other tech companies, Block (SQ 1.36%) (formerly known as Square) was a huge beneficiary of the mid-2020 to late-2021 bull market. From March 2020 to February 2021, Block's stock increased by well over 600%. Since then, it's down over 70% and closer to where it was in the months leading up to the beginning of the COVID-19 pandemic.

Block has a suite of products, including Square, Cash App, TIDAL, TBD, and Spiral. Square, which allows businesses of all sizes to accept payments and run daily operations, has always been the company's main moneymaker. However, this has recently changed with the growth of its Cash App business.

Here's how Square's and Cash App's gross profits have stacked up in the past.

Timeframe Square Gross Profit Cash App Gross Profit
FY 2019 $1.39 billion $457 million
FY 2020 $1.50 billion $1.22 billion
FY 2021 2.31 billion $2.07 billion
Q4 2022 $801 million $848 million
FY 2022 $3 billion $2.95 billion

Data source: Block.

Block's Q4 2022 was the first time Cash App surpassed Square in gross profit, and it has its 64% year-over-year growth to thank. Cash App needs scale to operate efficiently, and the company continues to add active users at impressive rates. In December 2022, Cash App had 51 million monthly transacting actives, up 16% year over year.

Square will undoubtedly be a staple in Block's business, but the company's foreseeable growth will likely rely on the continued success of Cash App. Peer-to-peer (P2P) payments generally bring consumers into Cash App, but the growing offering of other services will retain customers long term.

Cash App has gone from just P2P payments to offering FDIC-insured accounts equipped with routing and checking numbers to offering tax filing services, savings options, and commerce options. As the company continues expanding its offerings, it should be a formidable player in the consumer fintech space.