Growth stocks soared last year as investors piled into high-potential players like artificial intelligence (AI) companies. In fact, these stocks led the S&P 500(SNPINDEX: ^GSPC)the Nasdaq Composite(NASDAQINDEX: ^IXIC)and the Dow Jones Industrial Average(DJINDICES: ^DJI) each to double-digit growth for 2024 – they rose 23%, 28%, and 12%, respectively. Since we are in a bull market, this is not too surprising: bull markets are generally favorable for growth-oriented companies, as the environment makes it easier for them to expand.
But this doesn't mean that all growth stocks have skyrocketed. Some quality players have been left behind. And the good news is that this offers you an opportunity right now to get the best growth stocks at very reasonable prices. Two in the consumer goods space come to mind.
Let's take a look at these players who have lost around 20% or more over the past year and make great buys today.
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Etsy(NASDAQ: ETSY) connects sellers of handmade items and antiques with buyers through its e-commerce platform. The company has increased revenue over time and is profitable. But returns have suffered over the past few years as the high interest rate environment and economic worries weigh on consumer wallets. Since Etsy sells discretionary items, when consumers curb spending, Etsy is likely to suffer.
Still, a couple of things make Etsy stand out as a winner and a solid long-term investment. And one of these is Etsy's capital-light business model, which means the company does not have to make large capital investments to grow.
For example, Etsy doesn't need to build warehouses or organize package deliveries—the sellers who pay Etsy to use its platform take care of all of this for their own Etsy shops. As a result, Etsy can turn most of its adjusted earnings before interest, taxes, depreciation and amortization (THE EVENTS) — about 90% in the most recent quarter — into free cash flow.
Another reason to like Etsy is the company's ability to keep buyers coming back and attract new buyers. Although the company has seen some small declines in active buyers – a 0.4% drop to around 91 million in the last quarter – overall, customers have remained loyal. Etsy's active buyer retention and its addition of new buyers each quarter remain above pre-pandemic levels. These trends could strengthen as the economic backdrop improves, and should lead to growth down the road.
Given these two points, Etsy, which trades for just 10x projected earnings, down from more than 16 times early last year, looks like an absolute bust right now – making it a stock that focuses on the consumer to buy and hold.
Fans of comfortable and stylish leggings and other leisure items are flocking to them Lululemon Athletica(NASDAQ: LULU). Its focus on the quality of its products has helped it become a leader in the premium market, allowing the company to excel and build an impressive track record of profitability.
In recent years, the company's revenue and net income have grown into the billions of dollars, and free cash flow on a trailing 12-month basis has reached more than $1.5 billion. Lululemon's managed to keep the gross margin high, at more than 57% quarter after quarter over the last two years, supporting a high level of profitability.
The company has seen slow growth in the Americas, where it generates most of its revenue, but international revenue and international comparable sales both advanced in the double digits in the most recent quarter. So Lululemon's earlier plan to increase international business is working – and the company is now focused on boosting US sales.
And recent news from Lululemon offers us reason to be optimistic. The company reported a successful holiday season, allowing it to raise its fourth quarter 2024 revenue, earnings per share, and gross profit guidance. The new forecast suggests revenue growth of 11% to 12% year on year.
On top of this, Lululemon's own actions show its confidence in its future. The company repurchased 1.6 million shares in the third quarter, and early last month, the board approved a $1 billion increase in the stock repurchase program.
Speaking of buying stock, at today's valuation, trading for 27x projected earnings compared to 40x about a year ago, Lululemon stock looks like it's on sale right now.
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Adria Cimino does not have a position in any of the stocks mentioned. The Motley Fool has sites and recommends Etsy and Lululemon Athletica. The Motley Fool has a disclosure policy.
