Over many years of investing in and writing about stocks, I’ve developed a method that, I believe, can enable many long-term retail investors to beat the market over the long term.

Specifically, identifying names that are drastically undervalued because the market is focusing on negative, relatively unimportant data points is a good way to invest profitably.

I believe that Spotify (NYSE:SPOT) stock appears to be in that situation now.

The Forest and the Trees

SPOT stock is trading near an all-time low, even though the popularity of podcasts is growing quickly. As a leader in the podcast sector and the holder of a significant first-mover advantage in the space, Spotify is very well-positioned to benefit from that trend.

Moreover, Spotify has launched an impressive new hardware product with a great deal of potential, and its revenue is growing quickly.

But the shares have tumbled partly because Wall Street is seemingly petrified by the company’s Q2 guidance, which calls for an operating loss for the quarter. Negative macro trends have also played a role in the shares’ massive retreat.

But as I explained in a previous column, the main factors behind the loss — accelerated hiring increases and currency fluctuations — will probably prove to be temporary. In other words, currency changes probably won’t be negative for Spotify for very long, and the company is unlikely to keep accelerating the growth of its workforce. Providing evidence for that argument, the company still expects to generate positive free cash flow this year.

More Information on Spotify’s Strong, Positive Catalysts

Buzzsprout reports that, “In 2022, 62% of the population 12+ has listened to a podcast.”

Ad spending tends to be based on the number of eyes (or in this case, the number of ears) that content attracts. So given multiple indications that Spotify’s podcast audience is quite large and growing, I believe that its podcast business is already quite lucrative and is likely to become much more profitable over the long term.

Also worth noting, as I pointed out in my April 29 column on SPOT stock, in Q1 Spotify’s “top line surged 24% YOY and its ad revenue soared 31% YOY…[And] Spotify predicts that its Q2 sales will increase to 2.8 billion euros, up from 2.66 billion euros in Q1.”

And on the hardware front, Spotify has introduced “Car Thing.” My fellow InvestorPlace contributor Joseph Nograles described the product as “a car display specifically for Spotify that mirrors whatever is on your phone.” I believe that the system’s combination of voice support and enabling users to add new songs and podcasts to their playlists could very well allow “Car Thing” to positively move the needle for Spotify.

The large decline of SPOT stock on overdone concerns about the company’s Q2 operating loss and macro fears has created a great buying opportunity for long-term growth investors.

On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.