Right now is a great time for growth-focused investors with a glass-half-full mindset. The Nasdaq Composite index, which is loaded with growth stocks, tanked by 33.1% last year and it still hasn't recovered fully from the peak it set in 2021.
In light of last year's collapse, many investors will look at the Nasdaq Composite index's drop over the past couple of weeks as a sign of more pain to come. While some caution is always warranted, there are some exceptional businesses in a high-growth phase right now that aren't getting the attention they deserve.
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These three stocks are backed by terrific businesses that are poised to continue growing at a rapid pace. Here's why you might want to scoop up some shares of each before growth stocks are fully in favor again.
Upstart
Shares of Upstart (UPST 2.76%) spiked this summer in response to a short squeeze, but the gains didn't last. The stock is down 59% from the peak it reached at the end of July.
Upstart uses a proprietary algorithm and artificial intelligence (AI) to evaluate individual credit risk. Banks and credit unions are beating a path to Upstart's door because its platform catches heaps of creditworthy borrowers they would otherwise deny due to subpar FICO scores.
Upstart finished this June with 100 lending partners from just 10 at the time of its initial public offering in 2020. While heaps more lending partners are climbing aboard, they aren't writing as many loans as they were a year ago. The pullback from lenders pushed second-quarter revenue down 44% year over year.
The loans Upstart originated in 2021 mostly underperformed, but it's hardly a disaster the company can't recover from. Any institution that made equal investments in Upstart-originated loans each quarter since 2018 can expect a 9.7% gross annualized return.
Revenue is down, but Upstart adjusted quickly to new market conditions. For example, the company slashed second-quarter marketing expenses by 77% year over year. Despite the swift loss of business, the well-managed company actually shrank its second-quarter net loss by more than $1 million per share.
Right now, beaten-down Upstart shares are trading for the relatively low price of just 4.7 times forward-looking revenue expectations. Scooping up some shares on the dip could lead to market-beating gains once consumer loan demand returns to normal levels.
SoFi Technologies
Shares of SoFi Technologies (SOFI 3.69%) are up sharply in 2023 but they're still down about 44% since the beginning of 2022.
The stock is down but the business is pulling in new customers at an eye-popping pace. In the second quarter, SoFi signed up 584,000 new members, which was a company record.
Many SoFi members who sign up to take advantage of a loan offer also sign up for financial services, including checking and savings accounts. During the second quarter, total deposits grew by $2.7 billion to reach $12.7 billion. This was extra encouraging because SoFi's bigger peers have been reporting outflows. Around 90% of SoFi's deposits come from members signed up for direct deposit, so we can expect this figure to continue expanding.
While most of Upstart's lending partners pulled back on new loans this year, SoFi has an algorithm of its own for evaluating individual credit risk and it isn't afraid to use it. The company finished June with around 1.5 million lending products, a 25% increase year over year.
SoFi is still losing money according to generally accepted accounting principles (GAAP), but probably not for much longer. The bank's losses are shrinking so rapidly that management is predicting profits on a GAAP basis in the fourth quarter.
At recent prices, you can pick up SoFi shares for around 2.8 times its tangible book value. This multiple is roughly twice as high as most well-established banks. With a rapidly growing deposit base plus an ability to originate personal loans without relying on Upstart or FICO, SoFi could grow several times faster than most banks. Scooping up some shares in the wake of the Nasdaq bear market dip looks like a smart move for investors ready to hold them over the long run.
