However, it’s possible for a stock to lose its appeal among investors. While growth stocks can become less attractive for several reasons, the subsequent losses can become overstretched. It’s possible for a falling rock to look extremely attractive after enduring significant losses. However, investing in these stocks requires a contrarian mindset, as sentiment is quite negative toward these types of stocks.
It’s amazing how quickly fortunes can change within a year. For some of these stocks, fortunes have only changed within a few months. These growth stocks once looked like they were on top of the world before tumbling. Now, they present reasonable entry points for long-term investors. Discover the fallen star growth stocks that look ready to rebound.
Super Micro Computer (SMCI)
Few stocks have received as much attention and headlines as Super Micro Computer (NASDAQ:SMCI). The stock went parabolic in January and continued an unstoppable ascent until early March. However, there were red flags during the run-up. The stock suddenly had a lofty valuation after staying under the radar for many years. The high P/E ratio made it harder to mask the company’s declining profit margins.
Investors saw that first-hand when Super Micro Computer dropped by more than 20% after releasing Q4 of fiscal year 2024 earnings. While most investors agree that revenue growth and sales guidance were impressive, declining profit margins stole the show, prompting the sell-off. The announced 10-for-1 stock split didn’t do much to minimize concerns.
Fiscal 2025 revenue is projected to almost double year-over-year (YOY) at the midpoint. The concern about profit margins remains, but Super Micro Computer suddenly trades at a 25 P/E ratio after losing more than 50% from its peak. Also, shares are down by more than 40% over the past month. SMCI has endured a lengthy descent since mid-March, but growth prospects make the current valuation attractive. Revenue growth will likely outpace net income growth, but profits are still expected to increase meaningfully YOY.
Crowdstrike (CRWD)
Despite their star role in a global tech outage, Crowdstrike (NASDAQ:CRWD) shouldn’t be dismissed as an investment, especially with the recent crash. The stock is down by roughly 40% from its all-time high. It was only a few weeks ago when Crowdstrike was a booming growth stock that was up by more than 50% year-to-date (YTD). However, the stock has shed its gains and is in the red in 2024.
Big mistakes like these happen, and they present long-term buying opportunities. Meta Platforms (NASDAQ:META) endured Cambridge Analytics while American Express (NYSE:AXP) navigated the Salad Oil Scandal in the 1960s. It still takes a lot of effort for customers to switch, and few companies can compete with Crowdstrike. The company has been professional with its handling of the tech outage and looks like it will regain trust over time.
Crowdstrike will report earnings on August 28. Investors will then get a better understanding of the current state of the business. Before the debacle, Crowdstrike regularly reported high annual recurring revenue growth and had soaring profit margins. It’s a matter of when, not if, Crowdstrike returns to those good times.
Duolingo (DUOL)
Duolingo (NASDAQ:DUOL) makes it easier for people to learn new languages while offering additional subjects like math and music. The stock has delivered impressive growth rates over several quarters. But there has been a mismatch with the company’s financial performance and its stock returns. Shares are down by 13% YTD but look like they can double within the next 3-5 years.
Second quarter revenue jumped by 41% YOY to reach $178.3 million. Net income came to $24.4 million compared to $3.7 million in the same quarter last year. Surging profits will make Duolingo’s P/E ratio more attractive. Margins should continue to increase since Duolingo is a software company instead of a firm that has many brick-and-mortar locations.
The educational app has 103.6 million monthly active users and 34.1 million daily active users. “Streaks” on the app are converting more of its users into daily active users. Furthermore, as people use the app more often, they become more likely to become paid subscribers. Duolingo saw a 52% YOY increase in its paid subscribers, reaching 8.0 million paid subscribers in the process.
On this date of publication, Marc Guberti held long positions in SMCI, CRWD, and DUOL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Marc Guberti is a finance freelance writer at InvestorPlace.com who hosts the Breakthrough Success Podcast. He has contributed to several publications, including the U.S. News & World Report, Benzinga, and Joy Wallet.