The stock market has been unforgiving lately. Plant-based dairy alternative pioneer Oatly Group (OTLY 3.05%) and animal wellness leader Petco Health and Wellness (WOOF -0.73%) have plummeted over 60% year to date.

But these are no fly by-night wannabes. Your average Wall Street analyst expects substantial earnings growth over the next five years, and these companies are household names.

Beyond the hectic nature of an inflation-flavored downturn, a serene analysis may reveal undervalued potential. Or maybe not -- so let's get to work and find out.

Oatly: Down 66% in 2023

Oat-based drinks expert Oatly hit the public stock market with a bang in 2021. The company's initial public offering (IPO) came with high expectations. The company priced its stock at $17 per share but the first day of trading started at $22.10. Share prices soared all the way to $28.73 in the first few weeks, followed by a brutal downtrend.

Formerly worth as much as $17 billion, the Swedish company's market cap has shrunk to $356 million.

And it's not hard to see why. Oatly's business results have a disturbing tendency to fall short of Wall Street's consensus expectations, which are based on management's guidance targets. In other words, Oatly's financial figures often disappoint a well-informed investor. Furthermore, Oatly is deeply unprofitable and its top-line growth has slowed down in recent reports.

Is this the end of the line for the health-conscious food producer? Not necessarily. Management still expects "profitable growth" in 2024, despite the challenging trends in earlier reports. Distribution and marketing plans are changing in the Asian market, as consumers there have surprised Oatly's leadership with a cautious return to normal spending patterns after the pandemic.

Oatly's next earnings report is due on Thursday, Nov. 9. This update should give investors a better sense of how the company's turnaround effort is playing out. In particular, I'll keep a close eye on the Asian strategy shift and the progress toward profitable operations.

And in the meantime, I think it's fair to say that Oatly's stock looks undervalued at the rock-bottom level of $0.60 per share. The stock is changing hands at 0.65 times the underlying company's book value, which suggests that the average investor thinks they'd be better off if Oatly simply stopped doing business, liquidated all its assets and sent the resulting cash to current shareholders.

I think that's wrong. Thursday's third-quarter report should provide more clues.

Petco: Down 64% in 2023

Founded in 1965, Petco is no puppy in the business world. However, it didn't enter the stock market until January 2021, which exposed Petco's stock to more volatility. With a short history of detailed financial reports, it's hard to know what to expect from these newcomers.

The company entered Wall Street in fine form, posting solid revenue and earnings growth in 2021. But the gains slowed down during the inflation crisis, where even pet lovers tightened their budgets for nonessential animal gear.

On the upside, Petco's earnings and cash flows are positive even now, and the bogged-down revenue line never turned lower. On the downside, retail giant Walmart recently launched pet grooming and veterinarian services in a partnership with Petco rival PetIQ. If the early test locations meet Walmart's expectations, a nationwide expansion could pose a serious threat to specialists like Petco.

Like Oatly, Petco's stock trades at a huge discount to the company's book value, with a price-to-book ratio of 0.4. In this case, the bears may have caught wind of a fundamental weakness. Petco needs new ideas at this point.

If the stock starts to climb back from this deep, dark hole of knee-jerk overreactions, I'm afraid that the normalization might be temporary. In the long run, big-box retailers and e-commerce outlets could eat up the entire pet-care market. I'd rather watch Petco's suffering stock from the sidelines until further notice.