The stock market has recently been captivated by soaring tech stocks, but it’s crucial for investors to also recognize potential growth opportunities in companies that have been largely overlooked by Wall Street. Today, let’s delve into two stocks that have tumbled significantly—down 78% and 88% from their peak valuations—that may present lucrative long-term prospects at their current price points.
In the past year, PayPal (NASDAQ: PYPL) has undergone significant transformation under new CEO Alex Chriss, a former executive at Intuit. Alongside a revamped leadership team, these changes aim to revitalize a previously stagnant growth trajectory in the competitive payment services sector. So far, early indicators suggest they are on the right track. In its recent quarterly report, PayPal reported an 11% year-over-year increase in total payment volume, and a remarkable 36% growth in adjusted earnings per share. An uptick in active accounts is promising, suggesting that efforts to reduce customer churn are paying off.
Exciting plans are being rolled out to boost PayPal’s market presence. Only a few weeks into September, the company announced an extended partnership with Shopify to enhance payment solutions in the U.S., a new advertising initiative to promote the PayPal Debit Mastercard, and the launch of the PayPal Everywhere rewards program that broadens consumer incentives. Despite these positive developments, the stock is trading at roughly 15 times its anticipated earnings, which could point to an undervalued asset, especially considering its strong cash position and more than $5 billion in annual free cash flow.
Switching gears to social media, Nextdoor (NYSE: KIND) has been relatively unnoticed in the stock market landscape that often gravitates towards large platforms like Meta Platforms or Pinterest. Nevertheless, one in three households in the U.S. engage with Nextdoor, although many remain unaware that it is publicly traded. Following its debut during the 2021 SPAC frenzy, Nextdoor’s stock has taken a downturn, but under the re-energized leadership of co-founder Nirav Tolia, the company is pivoting towards efficient and responsible growth.
Just six months into Tolia’s return as CEO, positive results are emerging. In its latest quarterly performance report, Nextdoor experienced a surge in weekly active users, alongside impressive increases in both revenue and adjusted EBITDA margins. The company forecasts an optimistic 11% increase in revenue year-over-year for 2024, projecting it could even achieve positive free cash flow by the fourth quarter of next year. With ample cash reserves, zero debt, and an appealing stock buyback initiative underway, Nextdoor has the potential to offer substantial rewards for investors willing to be patient.
While both PayPal and Nextdoor may bristle with high-risk elements, they also hold remarkable upside for savvy investors. However, caution is warranted—while these firms could lead to significant returns, execution challenges remain a possibility. With volatility expected, careful consideration and strategic planning are essential.
For those contemplating an investment in PayPal, it’s wise to first consult expert analyses. For instance, The Motley Fool’s Stock Advisor has identified ten compelling stock picks that are currently worth exploring, although PayPal did not make this particular list. These selections are believed to have a promising outlook, potentially mirroring past successes such as the impressive growth experienced by Nvidia since its inception.
The shift in market dynamics offers both challenges and extraordinary opportunities for keen investors to tap into undervalued stocks. By keeping a close eye on evolving companies like PayPal and Nextdoor, investors position themselves to capitalize on potential future successes that may currently be flying under the radar. Remember to do your own research and evaluate risk levels before diving into new investments.