Growth stocks soared last 12 months as investors piled into high-potential players like artificial intelligence (AI) firms. In reality, these stocks led the S&P 500(SNPINDEX: ^GSPC), the Nasdaq Composite(NASDAQINDEX: ^IXIC), and the Dow Jones Industrial Average(DJINDICES: ^DJI) each to a double-digit gain for 2024 — they rose 23%, 28%, and 12%, respectively. Since we’re in a bull market, this is not too surprising: Bull markets generally are favorable for firms focused on growth, because the environment makes it easier for them to expand.
But this doesn’t suggest every growth stock has skyrocketed. Some quality players have been left behind. And the excellent news is that this offers you a possibility straight away to get in on top growth stocks for very reasonable prices. Two in the patron goods space come to mind.
Let’s try these players which have lost about 20% or more over the past 12 months and make great buys today.
Image source: Getty Images.
Etsy(NASDAQ: ETSY) connects sellers of handmade and vintage items with buyers through its e-commerce platform. The corporate has grown revenue over time and is profitable. But earnings have suffered over the past couple of years because the high-interest rate environment and economic worries weighed on consumers’ wallets. Since Etsy sells discretionary items, when consumers rein in spending, Etsy is prone to suffer.
Still, a few things make Etsy stand out as a solid long-term winner and investment. And one among these is Etsy’s capital-light business model, meaning the corporate doesn’t need to make major capital investments to grow.
For instance, Etsy doesn’t need to construct warehouses or organize package deliveries — the sellers that pay Etsy to make use of its platform handle all of this for their very own Etsy shops. Because of this, Etsy can turn most of its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) — about 90% in the newest quarter — into free money flow.
Another excuse to love Etsy is for the corporate’s ability to each keep buyers coming back and attract latest buyers. Though the corporate has seen some small decreases in energetic buyers — a 0.4% decline to about 91 million within the recent quarter — overall, customers have remained loyal. Etsy’s retention of energetic buyers and its addition of latest buyers on a quarterly basis remain above pre-pandemic levels. These trends could strengthen because the economic backdrop improves, and it should lead to growth down the road.
Considering these two points, Etsy, trading for under 10x forward earnings estimates, down from greater than 16x early last 12 months, looks like an absolute steal straight away — making it a top consumer-oriented stock to purchase and hold.
Fans of comfortable and classy leggings and other athleisure items flock to Lululemon Athletica(NASDAQ: LULU). Its deal with the standard of its products has helped it grow to be a pacesetter within the premium market, allowing the corporate to excel and construct a formidable track record of profitability.
In recent times, the corporate’s revenue and net income have climbed into the billions of dollars, and free money flow on a trailing-12-month basis has reached greater than $1.5 billion. Lululemon’s managed to maintain gross margin high, at greater than 57% quarter after quarter over the past two years, supporting a high level of profitability.
The corporate has seen growth slow within the Americas, where it generates the lion’s share of its revenue, but international revenue and international comparable sales each advanced within the double digits in probably the most recent quarter. So Lululemon’s earlier plan to extend international business is working — and the corporate now has put its deal with boosting U.S. sales.
And up to date news from Lululemon offers us reason to be optimistic. The corporate reported a successful holiday season, allowing it to boost its fourth-quarter 2024 revenue, earnings per share, and gross margin guidance. The brand new forecast implies 11% to 12% revenue growth 12 months over 12 months.
On top of this, Lululemon’s own actions show its confidence in its future. The corporate repurchased 1.6 million shares within the third quarter, and early last month, the board approved a $1 billion increase within the stock repurchase program.
Speaking of shopping for stock, at today’s valuation, trading for 27x forward earnings estimates compared with 40x a couple of 12 months ago, Lululemon stock looks prefer it’s on sale straight away.
Before you purchase stock in Etsy, consider this:
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Adria Cimino has no position in any of the stocks mentioned. The Motley Idiot has positions in and recommends Etsy and Lululemon Athletica. The Motley Idiot has a disclosure policy.