In the wake of last year's historic downturn, Wall Street has had reason to celebrate in 2023. The S&P 500 has climbed nearly 26% from its trough in October, poised just 6% below its all-time high (as of this writing). Once the index surpasses this critical benchmark, it will have passed the final test signaling the onset of the next bull market.
Yet even as the market has rebounded, not all stocks have participated equally in the recovery. This presents savvy investors with the opportunity to pick up shares of beaten-down growth stocks with plenty of room to run before the bull market rally begins in earnest.
Here are two stocks investors should buy hand over fist before they soar 77% and 82% -- or more -- over the coming 12 to 18 months, according to select Wall Street analysts.
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1. Fiverr International -- implied upside 82%
After a pandemic-era growth spurt that helped drive the stock up more than 900%, Fiverr International (FVRR 3.74%) stock has fallen on hard times. In the face of rising inflation and a cutback in business spending, demand on Fiverr's freelancer connection platform fell off a cliff. However, as inflation continues to cool and the economic outlook improves, companies are beginning to ramp up spending. Increasing confidence that the worst has past is inspiring companies to start or resume projects that were put on the back burner during the downturn.
As Fiverr's revenue growth took a hit, management turned its attention to profitability, an approach that is making solid progress. In the third quarter, revenue of $92.5 million climbed 12% year over year and the company reported its second consecutive quarter of profits. Equally as important, Fiverr continues to deliver an improving adjusted EBITDA margin and growing operating cash flow, which paves the road for strong and consistent profitability in the future.
From a business standpoint, Fiverr is expanding its Neo talent-matching service, which uses the latest developments in artificial intelligence (AI) to match customers with the freelancer best suited to their needs.
Wall Street remains firmly behind Fiverr. Of the 10 analysts who cover Fiverr stock, six rate it a buy or strong buy, and not a single one recommends selling. Furthermore, the average analyst's price target of $35 suggests potential upside of 49% compared to Thursday's closing price.
Goldman Sachs analyst Eric Sheridan is much more bullish on the potential upside for Fiverr, with a price target of $43, which implies potential gains for investors of 82% -- though he didn't provide any commentary regarding the price target change. However, colleagues at RBC Capital were encouraged by Fiverr's improving take rate, success "finding high quality buyers," and its "progress going up market."
Some investors initially abandoned Fiverr stock was the company's frothy valuation, but that too has passed. The correction has driven the stock into bargain basement territory, selling for just 13 times forward earnings and 2 times forward sales.
The company's cheap valuation, growing profitability, and a strong endorsement from Wall Street shows why investors should be buying Fiverr hand over fist.
2. Portillo's -- implied upside 77%
Fiverr wasn't the only company stung by decades-high inflation. The restaurant industry has been stuck between a rock and a hard place, faced with rising labor inflation and higher food costs, and fast-casual restaurant Portillo's (PTLO 0.25%) wasn't immune. The purveyor of Chicago-style fare has continued to expand sales, but that growth has come at a cost, as its margins were pinched.
But just as rising inflation pressured results, cooling prices are providing some much-needed relief for Portillo's, which appears to be on the road to recovery. In the third quarter, revenue of $167 million increased 10% year over year, while same-restaurant sales increased by 3.9%. Profits are also on the mend, as earnings per share of $0.08 doubled compared to the prior-year quarter.
The company chose to raise prices only moderately during the downturn, which won rave reviews from customers, as same restaurant sales have increased 6.1% year to date, accelerating from 5.2% during the prior-year period.
Wall Street is bullish regarding Portillo's future prospects. The average analyst price target of roughly $22 suggests potential upside of 46% compared to Thursday's closing price. Furthermore, of the 10 analysts who cover Portillo's stock, nine rate it a buy or strong buy, and none recommend selling.
However, Loop Capital analysts are more bullish, with a buy rating and a price target of $27, which suggests potential gains for investors of 77%. The analysts cited Portillo's improving bottom line and increasing same-store traffic trends as positive trends.
Portillo's has also shed its lofty valuation and is now selling for a price-to-sales ratio of roughly 1, making it the very definition of a bargain. Add to that the improving economic outlook and easing inflation -- which will ultimately help expand its margins further -- and it's easy to see why investors should be buying Portillo's stock hand over fist.
