Regardless of the negative news swirling about the market right now, some sleeper stocks continue to rally and reach new highs. But while it’s easy to chase momentum, that approach has a few risks. Soaring stocks can be humbled during sharp market corrections, and a quick ascent leaves a corporation more vulnerable to a bad earnings report.
Investors saw this scenario play out after the pandemic. Many stocks that soared in 2020 and 2021 proceeded to crash in 2022. Some of the stocks that fell hard in 2022 reclaimed their all-time highs this year, while others will never recover.
You don’t have to look at momentum to find winning stocks. Some stocks remain flat for several years before surprising investors with a massive spike. There are a few sleeper stocks that remain overlooked by most investors. These corporations haven’t had the best historical returns, but financial growth can fuel these stocks to respectable gains. Investors may want to monitor these sleeper stocks as they gear up for long-term rallies.
SoFi (SOFI)
SoFi (NASDAQ:SOFI) is a digital bank that serves more than 8 million members. Despite having a large user base, the stock hasn’t done so well. Shares are down by 24% year-to-date (YTD) and the losses are only at that level because of a 12% rally over the past month. SoFi stock is also down by 30% over the past five years.
Although it hasn’t been pretty, investors may want to take a closer look at this sleeper stock. Revenue continues to soar and was 37% higher in Q1 2024 compared to the same period last year. Net income was another bright spot, as the company turned a $34.4 million net loss into $88 million in profit.
High revenue and net income growth point to solid long-term gains, but it may take a while for the company to realize its full potential. SoFi offers several financial products that are picking up momentum, such as brokerage accounts, loans, credit cards, bank accounts and more.
Upwork (UPWK)
Upwork (NASDAQ:UPWK) has positioned itself to thrive as more people seek remote work. Some people want to work remotely full-time while others view Upwork as a way to pick up viable side hustles.
The freelance marketplace was all the rage during the pandemic. Shares rallied by almost 1,000% from the pandemic lows to mid-February 2021. However, shares remain more than 80% removed from their all-time highs. The stock soared too quickly and soured for investors who bought shares during the pandemic.
Upwork now has a 33 price-to-earnings (P/E) ratio and financial growth that suggest more gains are on the way. Revenue increased by 19% year-over-year (YOY) in the first quarter while net income was up by 7.4% YOY. Upwork’s advertising segment was a top winner that grew by 93% YOY. The company also surpassed 100,000 monthly subscriptions for its Freelancer Plus segment. This component of Upwork’s business delivered 76% YOY revenue growth.
Duolingo (DUOL)
Duolingo (NASDAQ:DUOL) makes it easier for people to learn new languages with verbal and written exercises. The educational app also offers lessons in other subjects like math and music. The stock is down by 21% YTD and has only mustered a 27% gain since its 2021 initial public offering (IPO).
Recent financial results suggest Duolingo’s luck may start to change. The company reported 45% YOY revenue growth in the first quarter. The educational technology firm has always done a good job with revenue growth, but the company continues to delight investors with soaring net income. Duolingo delivered $27 million in net income compared to a $2.6 million net loss in the same quarter last year.
Duolingo’s rising profits will result in a more attractive P/E ratio and should help the stock rally. Many Wall Street analysts believe that scenario is likely to play out. The average price target implies a 51% upside from current levels.
On this date of publication, Marc Guberti held a long position in SOFI. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.comPublishing Guidelines.
On the date of publication, the responsible editor did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
