Whether you’ve been investing for decades or are just starting out, this has been a difficult year. The benchmark S&P 500 index lost more ground in the first half of 2022 than it had since 1970.
The thing to remember about market downturns is that bad stocks tend to fall just as easily as great stocks that can deliver market-beating gains. These three growth stocks have what they need to outperform over the long run, but they’ve fallen between 51% and 80% from the peak prices they reached last year.
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1. Shopify
Shares of Shopify (SHOP -0.69%) benefited greatly from the surge in demand for online shopping when the pandemic kept us all at home. The former high-flyer has fallen more than 80% from the peak it reached last year.
The bottom fell out from under Shopify shares largely because investors are nervous about the company’s ongoing transition from a mainly software company to one that also excels at fulfillment services like its e-commerce rival, Amazon. To this end, Shopify acquired Deliverr for $2.1 billion in July.
Deliverr is a fulfillment technology provider that enables two-day shipping for direct-to-consumer merchants. This will make it easier for more of Shopify’s merchant partners to offer ultra-fast fulfillment services without handing control of their customer relationships over to Amazon.
Heavy investment to shore up its fulfillment network combined with a general online shopping slowdown have led to losses on the bottom line for Shopify’s e-commerce businesses in the first half of 2022. Investors will be glad to know the company finished June with nearly $7 billion in cash. That’s more than enough to keep operations humming along while general e-commerce activity catches up to the company’s improved capacity.
2. Duolingo
Duolingo (DUOL -15.04%) stock surged during the strictest pandemic lockdowns, but it’s fallen by more than half since it peaked last September. This language-focused education company owns the top-grossing education app on Apple‘s App Store and Google’s Play Store.
Learning a new language or brushing up on an old one was one of the top activities for people with extra time on their hands during strict COVID-19-related restrictions. Investors worried that fewer people with extra time on their hands would curtail Duolingo’s rapid growth rate and hammered the stock without waiting for evidence.
You wouldn’t know it by looking a the stock price, but Duolingo’s app is still bringing in new subscribers and retaining old ones. In August, the company reported second-quarter revenue that grew more than 50% from the previous year’s period.
Duolingo’s relentless focus on improving its lessons in ways that encourage free users to become paid subscribers is working. An impressive 25% of daily active users at the end of June were paid subscribers, up from 21% a year earlier. These impressive gains at a time that should be extra challenging for online education companies to make year-over-year comparisons suggest a bright future ahead.
3. SoFi Technologies
Shares of SoFi Technologies (SOFI -5.50%) have tumbled around 77% from a high-water mark in early 2021. This company began refinancing student loans around a decade ago, and now it’s a full-service consumer bank with 4.3 million members who are using 6.6 million products.
In addition to a full-service consumer banking operation, SoFi owns Galileo and its industry-leading application programming interface (API). When businesses want to create accounts and set up payment cards, they flock to the Galileo API, which enabled 117 million accounts at the end of June.
SoFi is in high-growth mode. It acquired Galileo in 2020 and another tech platform called Technisys in March. Despite making big investments to solidify its unique position, the company has reported positive earnings before interest, taxes, depreciation, or amortization (EBITDA) for two straight years. The stock’s price might be volatile, but this well-run bank is set up to deliver market-beating gains over the long run.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Cory Renauer has positions in Duolingo, Inc., Shopify, and SoFi Technologies, Inc. The Motley Fool has positions in and recommends Amazon, Apple, and Shopify. The Motley Fool recommends the following options: long January 2023 $1,140 calls on Shopify, long March 2023 $120 calls on Apple, short January 2023 $1,160 calls on Shopify, and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.
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