A bear market occurs when the price of an asset or index falls 20% (or more) from its all-time high. In the case of the stock market, this happens every 3.6 years on average. In 2022, both the reference S&P500 index and centered technology Nasdaq 100 the index crossed the bear market threshold. The sell-off has been broad and relentless, especially for tech stocks, many of which have lost more than 50% of their value. But for long-term investors, it has created some interesting opportunities.
These three companies are currently worth between $900 million and $2 billion, but they each have the potential to rack up valuations of $5 billion by 2030. This opens the door to significant upside for investors. Here’s why.
1.Upstart: 144% implied uptick
Assets received (UPST 6.41%) is an artificial intelligence company changing the way banks assess potential borrowers. He says his algorithm can make loan decisions faster and more accurate than traditional valuation methods, which historically relied on Just IsaacFICO credit score system.
Upstart has issued $25 billion in loans for its 60 banking and credit union partners since its inception, and it collects fees for doing so. But the company has just entered the auto loan segment, which is worth around $751 billion in annual originations, so it has tapped into only a small part of its potential so far. In addition, Upstart may consider business loans and mortgages in the future, which would benefit to reach $6 trillion annually.
Upstart is showing exceptional growth, growing its revenue by a whopping 96% compound annual rate between 2017 and 2021. But it is set for a slowdown after cutting its 2022 revenue forecast amid challenges including rising interest rates and a weakening economy, although none of these problems are likely to last long term.
Upstart stocks have taken investors on a roller coaster ride. After listing on the stock exchange in December 2020 at $20 per share, it rose more than 20 times to an all-time high of $401 before falling back to earth, now trading at $24 per share. It has a market valuation of $2 billion right now, so its stock price is expected to rise 144% to $59 to reach a valuation of $5 billion by 2030.
That’s just a fraction of Upstart’s all-time high, and given the company’s potential, that goal seems entirely achievable by 2030.
2. Lemonade: implicit increase of 323%
Lemonade (LMND 3.36%) is another fintech company that is using artificial intelligence to transform an age-old industry — this time, insurance. The company has developed a web-based robot that can interact with customers to write a quote in less than 90 seconds and pay claims in three minutes, all without human intervention in most cases.
In the two years between the first quarter of 2020 and the recent first quarter of 2022, Lemonade more than doubled its customer base to 1.5 million and more than tripled its in-force premium from $133 million to $419 million. This follows the company’s entry into the auto insurance market, its newest and potentially most lucrative segment. It could be worth more than $316 billion in the United States in 2022 alone, from a pool of 198 million policyholders.
Yet despite Lemonade’s strong growth, its stock has crashed 88% from its all-time high, and its market valuation now sits at a modest $1.1 billion. The company is losing a lot of money as it grows and expands its business, and investors have expressed little patience for this process amid the broader technology sell-off. But as the economy improves, so should the appetite for high-growth stocks.
Lemonade had a market valuation of around $10 billion at its all-time high, so it would need to regain half that level to hit $5 billion. It has the potential and the growth rate to achieve this by 2030, and if so, it would offer investors a 323% return.
3. Redfin: Implied 455% upside
In an economic environment where interest rates are rising, property prices generally fall, so buy red fin (RDFN 3.68%) the stock is a contrarian game. But the company could be the future of the industry, and it’s too cheap to ignore right now.
Redfin has built an army of 2,750 real estate brokers across the United States, and that represents 1.18% of all home sales by value. This significant scale allows the company to charge registration fees as low as 1%, much cheaper than the industry standard 2.5%. Since launching Redfin, it has saved sellers over $1 billion.
The company also operates an iBuying segment that buys homes directly from willing sellers and then attempts to flip them for a profit. It’s a risky practice, especially if property prices fall, and it’s dealt a devastating blow to Redfin’s main competitor. Zillow Group (Z 2.50%) (ZG 2.67%) Last year. Fortunately, Redfin’s iBuying business is much smaller and appears to have behaved less aggressively when acquiring properties, so there’s no sign it will suffer a similar fate at this stage.
Redfin’s stock once traded at $96.59, but is down 91% from that level at $8.43 today. That puts its current valuation at just $900 million, less than half of its $1.9 billion revenue for the full year 2021. In 2022, analysts expect revenue to rise again, reaching $2.5 billion.
Redfin stock is expected to rise 455% to $47 to rack up a $5 billion valuation, and there’s reason to think it could be there right now were it not for the uncertainty in the real estate market. But it won’t last forever. As long as Redfin continues to grow steadily over the next eight years, it should find the goal very achievable.
Anthony Di Pizio has no position in the stocks mentioned. The Motley Fool holds and recommends Lemonade, Inc., Redfin, Upstart Holdings, Inc., Zillow Group (A shares) and Zillow Group (C shares). The Motley Fool recommends Fair Isaac and recommends the following options: $13 short calls in August 2022 on Redfin. The Motley Fool has a disclosure policy.