Despite the S&P 500 soaring by 69% since its lowest point in 2022, several leading companies' stocks remain undervalued. This article explores two such firms—Alibaba and Wayfair—whose share prices have not yet recovered to their former highs. Both companies experienced significant challenges but show promising signs of resurgence as market conditions improve. For Alibaba, the post-pandemic economic slowdown in China has dampened sales, while Wayfair faced headwinds from a sluggish U.S. housing market. However, both are positioning themselves for potential growth in 2025.

Alibaba Group, the dominant player in China's e-commerce landscape, has seen its fortunes fluctuate in recent years. Once known for its robust double-digit revenue growth, the company began reporting declines in 2022. The primary factor behind this downturn was the lingering effects of the pandemic on the Chinese economy. Alibaba operates across various sectors, including e-commerce platforms like Taobao and Tmall, logistics, cloud computing, and entertainment. By Q3 2024, however, there were early signs of recovery, with revenue increasing by 5% year over year. Statista projects that China’s e-commerce market will expand by 47% to reach $1.7 trillion within three years. The Chinese government has also implemented measures to stimulate economic activity, which should benefit Alibaba as the largest e-commerce and cloud services provider in the region. Moreover, Alibaba's international commerce division is thriving, with a 35% year-over-year revenue increase driven by AliExpress and Trendyol. The company's artificial intelligence products have also seen impressive triple-digit growth. With a price-to-earnings ratio of just 11, Alibaba presents an attractive investment opportunity for those looking for long-term gains.

Wayfair, a leading online retailer specializing in home goods, has similarly faced challenges due to rising interest rates affecting the U.S. housing market. Until recently, the company enjoyed consistent annual revenue growth of around 40%. However, the collapse in demand for home goods led to a sharp decline in sales. In the most recent quarter, revenue dropped by only 2% compared to the same period last year, signaling a stabilization in sales trends. Management has taken proactive steps to improve cash flow, including exiting less profitable markets like Germany to focus on regions with better growth prospects such as the U.S., Canada, U.K., and Ireland. Wayfair returned to positive free cash flow last year, setting the stage for sustainable growth. Despite losing a small number of active customers, the company still boasts a substantial base of over 21 million users. Average order value increased by 4.4% year over year to $310, indicating higher spending per customer. As the housing market recovers, Wayfair stands to benefit significantly, offering investors a compelling value proposition with its current price-to-sales multiple of 0.5.

As market conditions continue to evolve, both Alibaba and Wayfair are well-positioned to capitalize on emerging opportunities. Alibaba's diverse business model and strategic international expansion, coupled with improving economic indicators in China, set the stage for a strong rebound. Similarly, Wayfair's financial improvements and the stabilizing U.S. housing market provide a solid foundation for future growth. Investors may find these undervalued stocks poised for significant gains in the coming years.