Billionaires were buying Upstart and 2 other growth stocks that are at more than 80% off
The markets are perhaps even more uncertain than last quarter. So despite the massive declines that accompany growth stocks, there is buying by billionaires who see opportunity in these growth stocks. All 3 stocks can now be bought at big discounts, so the question is whether the billionaires have already hit the bottom or have hit the wrong one altogether. Which companies are they?
I'm basing this on the 13F report that all institutional investment managers who have more than $100 million under management are required to file. The most recent report was for the second quarter of this year, so we can look together at how this bet on risky growth stocks has paid off so far.
1. Shopify $SHOP-4.4%
Jamie Simons of Renaissence Technologies opened a position in Shopify, buying around 14 million shares. Shopify hit its high of $176 per share last November, only to see the e-commerce retailer's share price fall more than 82% since then. That's a pretty decent drop.
Over the long term, Simons' investment may make sense, but in any case, I expect even more declines this year related to market volatility. Shopify is in the same segment as Amazon, which is the king of more than just this industry. So there is huge and fierce competition for SHOP.
Taking a quick look at the Financials and the year-over-year growth in each metric, we can see the trend in revenue growth, gross profit, and operating income, which has been in the black since 2020. Net income only turned positive in 2020 and was even nine times larger in 2021, which I would take with a bit of a grain of salt and see if the growth in this metric continues or not.
2. StoneCo $STNE-4.0%
StoneCo is a Brazilian company that provides merchants with financial technology solutions for e-commerce in stores, but also online. The shares of this company were largely bought by Steven Cohen and his fund Point72 Asset Management, which became the 9th largest investor of StoneCo ever. The fund increased its holding by 128% right away, as we can see in the screen below.
StoneCo has fallen 83% from its one-year high of $51.8 per share and now trades at $8.9. Which is already a decent drop that may sound tempting to open a position.
How does the company make money? Their main income is from fees for their services, which include transaction payment processing, prepaid financing, subscriptions and equipment rentals. They primarily target small and medium-sized businesses. The downside of the company is that all revenue is generated in Brazil only, so any economic or political problems can hit them big.
3. Upstart Holdings $UPST-3.7%
Phillip Lafont of Coatue Management opened a position in Upstart worth 2.36 million shares, putting Upstart in the top 30 of his largest holdings.
Upstart stock had the worst year of the 3 stocks selected today. From its yearly high of $401.49, the stock has plummeted to $24.92, down 94%. I think the chart says it all. If the stock were ever to get to an all time high, it would have to make a 1504% gain, I wrote a short post about this last month: Your position drops 90%, but to get back to the original price it has to achieve 1000% growth. Are you aware of this.
Upstart probably has the most interesting moat of today's trio in my opinion. It operates a cloud-based artificial intelligence lending platform. This platform averages consumer demand for loans and connects it to a network of banking partners that use artificial intelligence.
The upstart had a bad quarter and Q3 is expected to be even worse for the company. In any case, this can be attributed to the general mood and the state of the markets, which have been and will continue to be very volatile. There are reasons to think that the share price has taken a ride with the market overreaction and the fundamentals have not deteriorated in any way.
I have not invested in the company myself and will not for now, and I expect more washouts in the fall. Anyway, their business is interesting and I will definitely keep an eye on them. Maybe I'll dive into a deeper analysis at some point, which I'll share with you here.
Have you invested in any of these companies? Or is investing in them too risky for you and you prefer to keep your hands off?
