While the market may not be delivering investors the same newsworthy returns that it was a few years ago, companies with staying power that revolve around a disruptive business model are continuing to steadily make themselves known. In some cases, this growth is evident in the stock's price, while in other instances, companies that are making meaningful progress in a tough economic landscape are still getting pummeled by the market.
Regardless, when your minimum holding period is three to five years or longer, what happens with the market, even in the next six to 12 months, needn't deter you from buying opportunities that align with your risk profile and investment goals. If you're looking for remarkable growth stocks to add to your buy list, you've come to the right place.
Here are two names to consider right now.
1. Upstart
Upstart (UPST 0.17%) had to contend with a supremely difficult lending environment over the last 12 to 16 months. The company makes most of its money from referral fees and other costs derived from the facilitation of loans for its wide-ranging network of lending partners like banks and credit unions. A decline in loan volume and loan funding drove revenue down and kept the company unprofitable in recent quarters. Still, there are multiple green flags on the horizon for investors to watch, some of which have likely been behind the stock's nearly 200% ascent since the start of 2023.
For one, while Upstart's loan volume will take time to recover as the macro environment relaxes, it's still seeing a broad surge in lending partners onboarded to its platform as banks, credit unions, and other institutions continue to recognize the potential of its artificial intelligence and machine learning-driven model. The company saw its network of banks and credit union partners surge 100% year over year as of the most recent quarter.
A growing network of auto dealers and original equipment manufacturers are leveraging its software to streamline the auto loan and sales application process, which takes everything from filling out loan paperwork to buying the actual vehicle completely digital. Upstart reported that 39 dealers had adopted its system as of the end of the first quarter, while it now has close to a dozen OEMs onboarded.
One of the biggest hurdles that Upstart faced in past quarters has been a decline in outside funding, although institutions like banks still fund the majority of loans processed on the platform. The company recently announced a series of multibillion-dollar outside funding deals that should help to resolve this issue in the coming quarters, including $2 billion in long-term funding over the next year alone.
Another green flag for Upstart is the fact that its model's accuracy and automation continue to improve at a stellar pace. Not only are 84% of all loan approvals completely automated, but 90% of small-dollar loans are totally automated. Upstart launched 23 new AI models and the largest accuracy improvement its platform has witnessed in the history of the company in the first three months of 2023. Bear in mind, Upstart's platform leverages over 1,000 data points, with the FICO score being just part of the picture, to assess consumer creditworthiness and determine loan approvals or denials.
Beyond the expanded access to credit and the much wider range of factors that its platform takes into account when processing loan applications, Upstart offers other benefits both for consumers and the lenders it partners with. Its programs operate 24/7. This means that loan applications and approvals can happen any time and any day of the week, with 70% of consumers using Upstart's platform via their mobile devices. Meanwhile, Upstart is poised to enter the mortgage segment of the lending market in the coming months, a space that alone is valued at nearly $3 trillion. The future could still be very bright for Upstart and its investors, even if patience may be required with this fintech stock in the next few quarters.
2. Etsy
Like most other e-commerce-facing companies, Etsy (ETSY 1.17%) had to contend with an interesting dynamic as shifts in consumer spending have occurred against the backdrop of the current economic situation. While hope persists that the global economy will be able to avoid a full-fledged recession, there's no denying that wallets are more constrained than in times past, and many consumers are prioritizing spending on experiences instead of things.
That being said, over the long term, the trajectory of retail spending is moving increasingly online. A business like Etsy is poised to benefit from the broader tailwinds in online spending for a few key reasons. For one, this is a business that occupies a unique niche of the e-commerce space, the area of vintage, handmade, and specialty goods.
Second, there are few direct competitors that operate at the size and scale Etsy does within its total addressable market. Management estimates that this market could be worth as much as $2 trillion and is still growing.
It's also worth pointing out that this is an incredibly asset-light business. Unlike other companies operating in and adjacent to the e-commerce space, Etsy doesn't store, process, or ship inventory for sellers. In fact, roughly 97% of sellers on the platform operate their business from home.
In the first quarter of 2023, active buyers, habitual buyers, and repeat buyers were up by respective amounts of 119%, 238%, and 149% compared to the same period four years ago in 2019. An active buyer is someone that has bought something on the platform in the prior 12 months, while a habitual buyer is someone who has spent $200 or more on six or more days in the prior 12 months.
Etsy's asset-light model and continued high levels of growth in a specialty niche of e-commerce are both competitive advantages that it can leverage over the long term. Even as the business is still contending with difficult comparisons to the pandemic-era level of growth, a broader look-back period provides a much more accurate gauge of where it's headed. Like any business with exposure to discretionary spending, Etsy will have to contend with turbulence in consumers' leanings, at least in the near future. Still, this business looks to be headed in the right direction, and investors may want to take note.
Rachel Warren has positions in Etsy. The Motley Fool has positions in and recommends Etsy and Upstart. The Motley Fool has a disclosure policy.
