Three hot stocks that have the potential to outperform the market
The S&P 500 has reached new highs this year, but not all companies in all sectors have seen their stocks rise. The retail sector has lagged the broader market for the past three years, but that means there are some interesting growth stocks that analysts say are selling at very reasonable prices compared to their future potential.
Below we look at three companies that operate in growth markets such as cosmetics and sportswear. The historical average annual return of the S&P 500 is roughly 10%, but these brands have much higher revenue growth, and their stocks trade at fair prices, which should allow investors to easily outperform the broader market.
E.l.f. Beauty $ELF+0.1%
Analysts often point out that investors who can recognize brands before they become household terms can reap huge profits. E.l.f. Beauty is currently one of the fastest growing consumer brands. Its share price has risen by a staggering 420% over the past three years, thanks to a combination of favourable pricing, product innovation and clever marketing, which has consistently supported robust revenue growth.
The company's sales grew 50% year-over-year in the most recent quarter, largely due to gaining significant market share in the cosmetics and skincare categories. E.l.f. Cosmetics has now become the second leading brand in the U.S. market after doubling its market share over the past three years.
In addition, E.l.f. is successfully tapping into the growing demand for skincare. Last year, the company acquired the Naturium brand, which has grown rapidly since its inception in 2019 and is now a significant contributor to E.l.f.'s revenue growth, with sales in the skincare segment growing 32 times faster than competitors.
The brand's success lies in offering competitively priced products that many customers consider to be of higher quality than more expensive alternatives. As a result, the brand has the potential to continue to generate significant wealth for investors.
Dutch Bros $BRO-1.0%
Dutch Bros is a fast-growing beverage chain that offers everything from coffee to sparkling sodas, including smoothies and energy drinks. The company has expanded rapidly across the U.S. since its inception in 1992 and its stock market listing in 2021.
The number of Dutch Bros. locations has nearly doubled to 912 in the past three years. The company's sales have increased 30% or more each quarter since 2021, except for a few weaker periods. In the second quarter of this year, the company again saw sales growth of 30%, with same-store sales up 4% year-over-year.
Despite these positive results, the company's stock has not skyrocketed, which can be attributed to a high valuation at the time of the IPO and recent slow sales growth at existing stores. However, an important indicator that is often overlooked is the contribution per branch, which increased to 30.8% in the most recent quarter, comparable to world-class restaurants like Chipotle Mexican Grill.
Lululemon Athletica $LULU+0.2%
Lululemon Athletica has become a fast-growing sportswear brand over the past 20+ years. For investors, this is an ideal opportunity - the brand is already established, but still small enough to generate above-market returns.
Despite relatively solid revenue growth of 10% year-over-year in the most recent quarter, Lululemon stock is down 50% year-to-date and trading at its lowest P/E in years. A key indicator of the company's potential is the extraordinary 35% year-over-year growth in international sales in the most recent quarter.
Lululemon also continues to grow its men's apparel segment, which has long lagged behind its women's offerings. Sales in this category are up 15% year-over-year, demonstrating the brand's potential for growth across a variety of demographic groups.
With the growth of the entire sportswear industry, which Statista believes could reach $293 billion by 2030, Lululemon is likely to continue to thrive.
Disclaimer: You'll find a lot of inspiration on Bulios, but stock selection and portfolio construction is up to you, so always do a thorough analysis of your own.
Source..