Bargain Hunters: These 3 Growth Stocks Haven't Been This Cheap in Years. Here's Why They Could Be Good Contrarian Buys

The article highlights Adobe, Chewy, and Duolingo as contrarian buys after steep declines of 48% to 77% over the past year, with each trading near multi-year lows. Adobe reported record quarterly revenue of $6.6 billion, Chewy posted net sales of $3.4 billion and net income near $95 million, and Duolingo grew daily active users 21% to 56.5 million while revenue rose 27% to $292 million. The piece argues that current valuations are attractive relative to fundamentals, with forward P/E multiples of about 8 for Adobe, 12 for Chewy, and just under 19 for Duolingo.

Analysis

The common setup across these names is not “cheap equals safe,” but “multiple compression after peak expectations.” That matters because the next leg is likely to be driven less by top-line growth and more by whether each company can prove that AI is a feature, not a substitute: Adobe has to defend workflow lock-in, Duolingo has to show AI improves retention and monetization without diluting brand, and Chewy has to keep customer economics stable as growth normalizes. In that sense, the real winner may be the incumbent with the highest switching costs and the cleanest path to incremental monetization; the biggest loser is any business whose product can be replicated inside a broader AI-native workflow.

The market is likely over-penalizing these names on different horizons. Adobe’s risk is a multi-quarter sentiment drain if investors keep treating generative AI as a product-category replacement rather than a productivity layer; that creates a classic slow-burn de-rating rather than an immediate fundamental break. Duolingo’s trade-off is more acute: if user growth accelerates faster than ad/subscription monetization, the stock can stay “right” operationally while being dead money near-term as margins compress and analysts haircut forward earnings.

Chewy looks the most mispriced from a second-order perspective because the bear case is mostly valuation memory, not operating stress. If pet spending stabilizes, the stock can rerate quickly because low expectations reduce the amount of fundamental improvement needed to re-anchor the multiple; meanwhile, any incremental margin lift from mix or fulfillment efficiency has an outsized effect on equity value. The hidden risk is that all three are crowded into the same ‘quality growth at a discount’ basket, so a market rotation out of long-duration growth could cap the upside even if the businesses keep executing.

Key Decisions for Investors

• Long ADBE on a 3-6 month horizon via equity or call spreads; use weakness toward prior support to express the view that AI is augmenting, not replacing, professional workflows. Risk/reward is attractive if the market stops extrapolating product commoditization into terminal decline.
• Pair trade: long CHWY / short a basket of high-multiple consumer internet names with weaker cash conversion over the next 1-2 quarters. CHWY has the cleanest setup for multiple repair if customer growth remains steady and margins hold.
• Initiate a DUOL call spread or small equity starter position into earnings/guidance updates, but keep size modest because margin compression can keep the stock range-bound even with strong user metrics. Best as a 6-12 month optionality trade, not a full-size core long.
• For ADBE, consider selling downside puts or structuring an iron condor around expected guidance cycles to monetize elevated sentiment volatility while maintaining upside exposure. This fits a view that the downside is increasingly narrative-driven rather than fundamental.
• If rotating capital within software, prefer CHWY and ADBE over DUOL for risk-adjusted upside until DUOL proves it can grow monetization without sacrificing margin discipline. DUOL is the highest-quality story but also the most vulnerable to near-term de-rating if investors focus on profitability instead of engagement.