One of the best things about investing in growth stocks is that there’s always a time to be buying them. Sure, a bad economy can sink the broader market and pull the best growth stocks down with it, but companies that have many opportunities to expand will bounce back and keep on hitting new highs over the long term.
That’s why, whether we are in a strong bull market, as we are now, or at the bottom of a sell-off, there are always companies with bright futures that are worth buying.
A store full of surprises
Five Below has found a winning formula selling a range of items, from Bluetooth speakers to pool floats, all for $5 or less. The stock has delivered big returns for shareholders, up 392% since the IPO seven years ago.
The company, run by a former Walmart executive, focuses on encouraging repeat purchases by keeping store inventory geared toward trendy products. The stores keep the shopping experience fun, utilizing a treasure-hunt retail strategy. All of this continues to drive impressive operating results, with revenue up 23% year over year in the first quarter, and earnings per share up 18%.
Five Below’s robust operating performance over the last few years has not gone unnoticed — the stock currently sports a forward P/E of 42 times this year’s earnings estimates. Even at that high earnings multiple, the stock can still make you money over the next 10 years and beyond. Five Below is led by a team of retail veterans, and the store footprint is only a third of management’s target of 2,500 stores nationwide.
Get your Stitch Fix
Consumer spending is becoming increasingly centered around convenience. We can order a ride on an app, have groceries delivered within two hours, and have a perfectly styled outfit sent right to our door.
Stitch Fix is helping a growing list of 3.1 million clients more easily find the right outfit for just about any occasion without the hassle of searching all over the internet or visiting a store, and the company’s growth has been impressive. Revenue has exploded from just $73 million five years ago to $1.46 billion over the last year.
The stock has been flat since the IPO over a year ago, but the stellar top-line growth and profitable business model says it’s only a matter of time before the stock moves higher. Stitch Fix uses data to tailor the service to meet each customer’s taste, and the service gets better at recommending items as its client base grows in size. More clients gives the company more data to feed its recommendations, and more data ultimately translates to happier customers.
Stitch Fix is focused on getting better at pleasing first-time customers because customers who decide to keep at least one item from their first shipment tend to stick with the service longer and spend more money over time.
The stock is difficult to value since Stitch Fix’s profit is minuscule in these early stages of growth, but the company could revolutionize how people shop for clothes. At a market value of only $2.9 billion, Stitch Fix is still a small fish in a big pond, making it a promising growth stock to tuck away in your nest egg.
In the fast lane
Lululemon is an emerging global athletic-wear brand that has seen significant growth over the last decade. The stock has tripled in value over the last two years, but at a market value of $23 billion and a growing athletic apparel market that is expected to reach more than $350 billion by 2021, there’s still tremendous upside for the stock over the long term.
Lululemon just reported its fiscal first-quarter results, and the recent momentum is still going strong. Revenue increased 20% year over year, with international growth up 39%. Earnings were solid, too, up 35%. The company is gaining an increasing share of spending from both men and women with new product categories and an expanding assortment — a testament of customer satisfaction and growing engagement with the brand.
The stock is understandably trading at a high forward P/E of 39, given the company’s recent performance. But revenue is expected to be $3.75 billion this year at the midpoint of guidance, and that looks tiny compared to the size of the athletic apparel market. With management expecting to quadruple international sales in five years, Lululemon has a long runway of growth ahead.
LULU shares rose $0.34 (+0.19%) in after-hours trading Monday. Year-to-date, LULU has gained 50.76%, versus a 16.30% rise in the benchmark S&P 500 index during the same period.
This article is brought to you courtesy of The Motley Fool.
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