While many stocks that got a big bump early in the pandemic are now trading well down from their all-time highs, a select few of these stocks are showing signs of renewed investor interest.
While stock price alone should never be a driving indicator to buy or sell a stock, the fact that certain companies saw shares rebound significantly this year might suggest that a closer look is warranted.
Here are two solid growth stocks trading up by double-digit (and even triple-digit) percentages in 2023 that you might want to consider for your portfolio right now.
1. Shopify
Shopify (SHOP 2.63%) shareholders were taken on a wild ride over the last year. Although they fell significantly in 2022, share prices are up about 68% so far this year. The price volatility, which is in line with a few other growth stocks, may not be over, but Shopify is definitely moving its business and growth story in an upward direction.
In the seven years since this e-commerce platform for online stores and retail point-of-sale systems' initial public offering, Shopify was profitable in five of them. That's a good track record, particularly in the industry that Shopify operates in, where generally accepted accounting principles (GAAP) unprofitability is commonplace. It's also good when you factor in the economic volatility of the past few years related to the pandemic.
Shopify made significant changes to deal with that volatility, including streamlining its focus on its core business, which is to deliver market-leading software, solutions, and technologies to enable its merchant clients to thrive. The streamlining included sweeping layoffs of about 20% of its workforce. Part of that workforce reduction is tied to a second major change, the sale of its logistics business to Flexport.
NASDAQ: SHOP
Key Data Points
These recent changes will incur some near-term expenses for Shopify. For example, restructuring charges like severance will cost the company $140 million to $150 million in the second quarter, and there will be around $1 billion to $1.5 billion in impairment charges stemming from the sale of its logistics business. Over the long term, these actions will significantly reduce Shopify's overhead costs and make it more asset-light than it has been.
The first quarter actually saw Shopify get back to profitability. Importantly, the company also became free-cash-flow-positive again. Management expects Shopify to remain cash-flow-positive for the full year as well.
Shopify is still one of the most popular providers of software solutions for merchants in 175 countries and counting needing e-commerce as well as in-stores assistance. Shopify still has work to do to accelerate its growth efforts, but it's definitely back on the right path.
2. Upstart
Artificial intelligence-based lending platform Upstart (UPST +2.10%) saw share prices skyrocket about 123% year to date, even as the broader lending environment continues to feel economic pressures. Interest rates remain elevated and aggressive efforts from the Federal Reserve have Upstart's institutional partners more wary about taking over loans Upstart initiates. Upstart ends up carrying more loans on its balance sheet for longer before passing them along to partners. This adjustment to its business model made many investors nervous, and the decline in loan volume also cut heavily into the company's profitability. Hence, the stock's significant volatility in recent months.
A closer look at the numbers shows the situation isn't as worrisome as some analysts would have you believe. At the end of 2022, Upstart's annual report noted that "30% of the loans funded through our platform were retained by the originating lenders, 60% of loans were purchased by institutional investors through our loan funding programs, and the remaining 10% were funded through our balance sheet."
And in the company's 10-Q report for the first quarter of 2023, management affirmed that "44% of the loans funded through our platform were retained by originating lending partners, 44% of loans were purchased by institutional investors through our loan funding programs, and the remaining 12% were funded through our balance sheet." In short, while the balance of loan funding has shifted in a high-interest-rate environment, Upstart's partners are still funding most of the loans it processes.
NASDAQ: UPST
Key Data Points
Upstart recently secured $2 billion in funding for the coming year from various institutional investors and also inked a deal with alternative investment firm Castlelake for another $4 billion in funding. These funding deals are a notable factor behind the stock's recent strong performance. The company was carrying about $987 million worth of loans on its own balance sheet as of the end of the first quarter of 2023, while it reported about $452 million of cash and restricted cash on hand. Upstart makes most of its revenue from fixed or variable fees it charges to lending partners for facilitating and referring loans.
Meanwhile, Upstart's proprietary loan evaluation model, which uses AI and machine learning to evaluate more than 1,500 data points and information from more than 44 million past repayment events to drive its lending decisions, continues to go from strength to strength. The platform delivered 23 separate AI upgrades in the first three months of 2023 alone. Now, 84% of all loans processed through Upstart's platform are totally automated without a human element involved. It also had 99 lending partners signed up to its platform at the time of its first quarter report, instead of the 50 it recorded a year ago.
Upstart needs to get back to profitability and revenue growth, but before it can do that, resolving its funding issues is key. It's also cutting operating costs, including through a recent bout of layoffs. There's work still to be done here, but Upstart looks like it could be headed on the road to positive financial growth again in the coming quarters.
