2 Growth Stocks Down 62% and 83% to Buy During the Market Sell-Off | The Motley Fool (2024)

It's no secret the stock market is a great vehicle for generating long-term wealth, and it's especially true of the technology sector specifically. An individual stock like Amazon, for example, has returned 182,140% since it listed publicly in 1997, so every $1,000 invested back then would be worth $1.82 million today, assuming you held on.

While not every tech company will reach such lofty heights, the recent market sell-off has delivered an opportunity to pick up some incredible innovators at steep discounts. Specific entry prices shouldn't matter so much to long-term investors, but picking up stocks while they're down can be a great way to increase returns over a five- to 10-year stretch.

These two companies are shaking up their respective industries, so it could be a great time to pick them up for your portfolio.

1. DocuSign: Down 62% from 52-week highs

Before the pandemic, the digital document industry wasn't exactly front-of-mind for investors, but lockdowns and work-from-home trends triggered a frenzy in stocks like DocuSign (DOCU 2.08%). The company is the leader in innovative technologies designed to facilitate remote collaboration for contract negotiations and help manage high volumes of legal paperwork.

DocuSign faces a challenge to prove its staying power now that employees are returning to the office, but it's building proprietary tools using advanced technologies like artificial intelligence (AI), which could be highly sought regardless of where people work. Its Insight platform leverages AI to scan contracts for problematic clauses and even potential opportunities, which could be a huge cost saver for organizations that regularly hire lawyers to do the same thing.

In January 2019, DocuSign had 477,000 users. Today, that figure stands at over 1.1 million, highlighting the rapid adoption triggered in part by the pandemic. It has sent the company's revenue soaring and helped it transition into a profitable enterprise.

Data source: DocuSign, Yahoo! Finance. CAGR = compound annual growth rate. DocuSign will report its fiscal 2022 full-year result in March.

Despite the 62% drop in DocuSign's stock price, it still trades at a price-to-earnings multiple of 59, based on estimated fiscal 2022 earnings per share of $1.98. It's substantially more expensive than the Nasdaq 100 index, which trades at a multiple of 33, but DocuSign's growth rate commands a premium to the broader market.

The company just entered its 2023 fiscal year, where analysts predict revenue could top $2.6 billion. For long-term investors, it likely won't take long for DocuSign to shrink its valuation metrics through its growth rate, which could make today's price look very cheap when looking back in a few years.

2. Lemonade: Down 83% from 52-week highs

Let's face it: Nobody likes dealing with insurance companies, especially when making a claim. Getting paid can involve multiple interactions with the insurer, which can be a long process. Improving the customer experience is exactly what Lemonade (LMND 4.04%) is striving for, and it's using advanced AI to make it happen.

The company's online AI-driven bot, Maya, can process claims in as little as three minutes, with 30% of them requiring no human input at all. And for new customers, it can provide a quote in 90 seconds. By running its entire process online and eliminating the need for lengthy phone calls, the company has attracted an incredibly young customer base, with a median age of 30 for those with entry-level policies.

Lemonade offers insurance products in five categories, but its recently added automotive segment is set to be its largest and could certainly be its most lucrative. However, training AI models requires mountains of real-world data, so the company entered this market at a distinct disadvantage to its entrenched competitors, even if their tech might be inferior to Lemonade's.

To solve this, it acquired AI-powered insurance broker MetroMile, adding 3 billion miles worth of data and 49 state insurance licenses to Lemonade's war chest. That better equips the company to tackle the U.S. car insurance segment, which is estimated to be worth $316 billion in 2022. Analysts already expect a strong ramp-up in Lemonade's revenue.

Data source: Lemonade, Yahoo! Finance. CAGR = compound annual growth rate.

To be clear, any stock that loses over 80% of its value is inherently risky, especially when the company is unprofitable like Lemonade is. But it's chasing an enormous addressable market, and if it's successful, the upside from here could be a game-changer for most portfolios.

Even if Lemonade simply reclaims its all-time high of $183 a share, that would be a gain of 530% from where it trades today -- but of course, getting back there is no guarantee.