All about Investing

2 Beaten-Down Growth Stocks That Could Soar, According to Wall Street

Related categories

Analysts may just be right about these two companies.

Legendary investor Warren Buffett is often quoted as saying, 'Be fearful when others are greedy and greedy when others are fearful.' In today's volatile market, investors can follow this wisdom by purchasing shares of great companies that have lagged in the struggling stock market and have scared away many investors.

Let's look at two tech stocks that fit the bill: Etsy (ETSY -1.25%) and MercadoLibre (MELI -3.15%). These companies boast significant upside potential if we go by average price targets assigned by Wall Street analysts.

ETSY data by YCharts

Image source: Getty Images.

1. Etsy

Even after a recent spike in its stock price, Etsy's shares have dropped by nearly 37% since the beginning of the year. This poor performance is due in part to things that are outside of the company's control. Marketwide worries, including impending interest rate hikes in the U.S. and geopolitical tensions, have caused investors to take their money out of growth stocks like Etsy.

But the company's average price target currently stands at $210.89, according to Yahoo! Finance. Etsy's shares are changing hands for roughly $140 apiece as of this writing. Going by its average price target, the e-commerce giant's stock price could soar by about 51%.

It's difficult to figure out whether Etsy will hit this target within the next 12 months. After all, the market still faces a lot of uncertainty. That said, the company's long-term prospects look attractive. Etsy has managed to carve out a solid niche in the e-commerce space: It offers primarily handmade and vintage goods that are otherwise hard to find.

Etsy is one of the leading platforms that offer such products. The company ended 2021 with 96.3 million active buyers, representing a 17.6% year-over-year increase. Etsy had 7.5 million active sellers at the end of the year, 72.3% higher than the year-ago period. While these values are consolidated, including results stemming from the Elo7 and Depop acquisitions, Etsy still reported significant organic growth.

It is worth noting that Etsy's platform benefits from the network effect. The more sellers who join the platform, the more attractive it becomes to buyers looking for a wide variety of vintage and handmade goods to choose from. On the other hand, an increase in the number of buyers also attracts sellers looking for a large clientele.

Etsy estimates its total addressable market to be worth $1.7 trillion, even capturing a small share of this market would work wonders for Etsy's business. The company's revenue for the year 2021 came in at $2.3 billion, 35% higher than the year-ago period. Etsy's net income for the year was $493.5 million, 41.3% higher than its 2020 net profit.

Considering the company has barely scratched the surface of the opportunities ahead, whether or not it hits the Street's price target in the coming year, Etsy is an excellent stock to buy and hold. 

2. MercadoLibre 

Although MercadoLibre has lagged the market in the past year, the e-commerce giant has generally reported strong financial results over this period. During the fourth quarter, MercadoLibre's revenue soared by 60.5% year over year to $2.1 billion. The company's gross merchandise volume -- the total value of orders processed through its platform -- came in at roughly $8 billion, 21.2% higher than the year-ago period.

The company also recorded growth in other metrics, including active users, items sold, items shipped, and more. However, MercadoLibre isn't profitable. Its net loss of $46.1 million during the fourth quarter was slightly better than the net loss of $50.6 million reported during the year-ago period.

Despite the red ink on the bottom line, MercadoLibre's prospects look enticing. That's partly because the company's business benefits from a solid competitive edge. Like Etsy, MercadoLibre's e-commerce operations have a network effect. Both buyers and sellers benefit as more of either group joins the platform. Further, due to the complementary set of services it offers merchants, it is difficult for them to jump ship without risking business disruptions.

These offerings include its fintech solutions platform Mercado Pago, its fulfillment solutions Mercado Envios, and Mercado Shops, which allows merchants to open online storefronts. MercadoLibre will benefit from the continued growth of the e-commerce industry, especially in South America, where the sector's penetration is lower than it is in North America.

While it hasn't performed well on the market lately, investors should ignore the short-term noise in favor of the company's substantial potential upside. MercadoLibre's average price target currently stands at $1,621.83, while the company's current stock price is nearly $1,250. That means the Street sees an upside of about 30% for the company. 

Analysts forecast that the company will grow 128% annually for the next five years. Even if MercadoLibre falls short of Wall Street's price prediction in the next 12 months, those who buy the company's shares today will likely be glad they did so in 10 years.

Leave your comment
Name
E-mail
Comment