The stock market is slipping into a downturn, with the TSX Composite Index down 15%. The ever-increasing oil price cooled, but natural gas prices soared, as the energy crisis intensifies in Europe. The overall consumer demand has slowed, and the Canadian economy reported negative GDP growth in the May flash estimate. The fear of a recession pulled down growth stocks to their low.
Two beaten-down growth stocks with potential
In these times, loss-making companies might look like a liability. But good things come to those who wait and see a bigger picture. You might have read case studies of remarkable turnaround and delayed growth that was worth the wait.
During the waiting period, the stock’s valuations were not attractive for a conventional investor. But a strong business model and the management’s knack for making tough decisions to achieve growth paved the way to 10-fold growth.
Here are two beaten-down growth stocks that can recover fast and make the wait worthwhile:
BlackBerry stock
From the 2007 technical disruption of the BlackBerry smartphone to turning towards software, BlackBerry has come a long way. I don’t say the wait is over. But the company is prepared to tap new growth in the internet of things (IoT) and cybersecurity space. The stock halved in the tech stock selloff that began in September 2021.
In 2018, BlackBerry shareholders extended John Chen’s tenure as a CEO to 2023, as he managed to turn the company around to a software firm and increase the stock’s valuation by 80%. However, things have been tough since then, and the stock lost 40% of its value. Investors are becoming impatient and rejected executive pay plans this year.
BlackBerry has been winning orders from automakers for its QNX platform. But the pandemic and a looming recession stalled electric vehicle (EV) growth and increased its revenue backlog. It has a QNX- related royalty revenue backlog of around $560 million.
BlackBerry has partnerships in place with tech leaders and automakers. The wait is for automotive sales to kick in. BlackBerry’s revenue fell from $1.04 billion in fiscal 2020 ended February 2020 to $718 million in fiscal 2022. Despite this, the company reported profits in fiscal 2022 by slashing sales and administrative expenses. BlackBerry has no concerns around debt repayments as it has a net cash position of $356 million, which shows that it can wait. But can you wait?
The stock has liquidity, a strong balance sheet, and a widely accepted automotive technology. An economic recovery will help the company realize the revenue backlog and give the stock the boost it needs. Many hedge fund investors are holding the stock in hopes for it to reach $20 in the long term — a 170% growth from the current trading price.
Lightspeed Commerce
Another beaten-down stock is Lightspeed Commerce, which lost 84% of its value since September 2021. It has lost three years of stock price growth, but not the revenue growth from acquisitions. The company went on an acquisition spree between 2019 and 2021, expanding its reach in new geographies and tapping more retailers and restaurants.
The company is in the business of making commerce efficient, and a recession slows commerce. Hence, Lightspeed’s revenue growth slowed, and losses expanded. The firm has paused its aggressive acquisitions and is sitting on a $1 billion cash reserve that will help it wait throughout the recession.
Every recession triggers the need for business efficiency. Lightspeed provides efficiency to small- and mid-sized retailers and restaurants through its omnichannel platform. The platform is a commonplace that connects retailers to their suppliers and consumers and helps them manage multiple locations efficiently.
When the economy recovers and consumer demand revives, Lightspeed will fire all cylinders to make its product sticky and help its users scale up efficiently. The recovery could boost the stock price and double your money within months. But this growth spurt will take time.
