When a stock crashes by more than 90% from its all-time high, investors would be right to question whether there is a structural problem with its underlying business. In most cases there is, but sometimes companies also succumb to economic factors outside of their control.
The two stocks featured here have lost between 90% and 95% of their value, but they're in the process of overcoming a mixture of internal and external challenges. If they succeed, investors who buy in today might be paying a rock-bottom price with the potential for substantial gains in the future.
1. Upstart
Believe it or not, shares of Upstart Holdings (UPST +0.63%) are up a whopping 187% in 2023. But the stock fell so sharply over the last two years that the gain barely made a dent in its overall losses, so it's still down 90% from its all-time high.
NASDAQ: UPST
Key Data Points
The tech company uses artificial intelligence (AI) to originate loans for banks, credit unions, and car dealerships. Investors grew concerned when the Federal Reserve embarked last year on the most aggressive campaign to hike interest rates in its history, because credit conditions rapidly deteriorated, sending loan defaults climbing and consumer demand for loans plunging.
Upstart was affected on both counts, but it recently released data that proves its AI algorithms can deliver quality originations even in this tough environment. As a result, in the first quarter of 2023 (ended March 31), the company had a record-high 99 lending partners, which was nearly double the number it had at the same time last year.
In a vote of confidence, some of those partners just committed more than $2 billion in funding to ensure Upstart can meet future loan demand.
The platform's algorithm is capable of analyzing 1,600 data points to determine a potential borrower's creditworthiness, as opposed to Fair Isaac's FICO scoring system, which only considers five.
And because Upstart is powered by AI, it can process that data instantly to deliver an immediate approval 84% of the time. That's a major time and cost saver for banks, because manually processing that much information would take a human assessor days or weeks.
The demand for loans isn't expected to recover in 2023. As a result, Wall Street analysts predict Upstart's full-year revenue will come in at $549 million, which would be a 34% drop compared to 2022. But revenue is expected to rebound strongly to $781 million in 2024 once the economy gains some upward momentum.
Now that Upstart has weathered this difficult period and has the unquestionable support of its lending partners, there's a good chance its stock will continue to recover into next year. In the long term, the company believes it has a $4 trillion opportunity in the markets for personal loans, automotive loans, business loans, and mortgages, so investors might wish they had bought in while its stock was so heavily beaten down.
2. GoPro
GoPro (GPRO 0.71%) isn't a red-hot tech company, nor is it actively using AI, but its stock still presents a rather enticing opportunity at its current price. After hitting an all-time high of $93.85 way back in 2014, it has steadily declined by 95% to trade at just $4.20 today. That's primarily because the action-camera maker has struggled to diversify and grow its business.
But it's entering a new era, and investors should pay attention.
NASDAQ: GPRO
Key Data Points
GoPro has always been a hardware company, and its action cameras lead the industry. But it's currently focused on developing a deeper presence in camera editing software, and on building its subscriber base.
At the end of the first quarter of 2023, the company had 2.36 million members paying for a GoPro.com subscription, which was up 36% year over year. It gives them access to exclusive product discounts, unlimited cloud storage for their video content, and the ability to live stream directly from their camera.
That's a big deal because subscriptions come with a gross profit margin as high as 80%, which is double the margin of GoPro's hardware products. The company believes it will generate around $100 million in annual recurring revenue from subscriptions alone by the end of this year, and while that will account for less than 10% of its total revenue, the impact on its bottom-line profitability could be significant.
Plus, GoPro is expecting to release its new desktop camera-editing software this year, which will complement its Quik smartphone camera and editor. It will be included under the GoPro.com subscription at no extra cost, in a move designed to keep retention rates high.
The company's research suggests users really want a desktop-based editor, so its inclusion might even entice new members who wouldn't have otherwise subscribed.
From a valuation perspective, GoPro stock trades near rock bottom. Investors value the company at just $650 million, yet it's expected to generate $1.1 billion in total revenue this year. Considering the company is profitable on an annual basis and is even executing a $70 million stock buyback program this year, now might be a great time to buy in.
