Growth stocks soared last year as investors piled into high-potential businesses such as artificial intelligence (AI) companies. In fact, these stocks led the way higher S&P 500 Index (SNPINDEX:^GSPC)this Nasdaq Composite Index (NASDAQ: ^IXIC),as well as Dow Jones Industrial Average (DJINDICES: ^DJI) By 2024, all three figures will see double-digit growth - 23%, 28% and 12% respectively. Since we're in a bull market, this isn't surprising: Bull markets generally favor growth-focused companies because the environment makes it easier for them to expand.
But that doesn't mean every growth stock is soaring. Some good players were left behind. The good news is that this gives you an opportunity to buy top growth stocks now at very reasonable prices. Two examples come to mind from the consumer goods world.
Let's look at these players who have lost around 20% or more over the past year but are buying today.
etsi (NASDAQ: ETSY) Connects sellers of handmade and vintage items with buyers through its e-commerce platform. Over time, the company grew revenue and became profitable. But earnings have suffered in the past few years as a high-interest rate environment and economic worries weighed on consumer wallets. Because Etsy sells discretionary items, it could be affected when consumers rein in their spending.
Still, there are a few things that make Etsy stand out as a solid long-term winner and investment. One of these is Etsy's capital-light business model, which means the company can grow without making major capital investments.
For example, Etsy doesn’t need to build a warehouse or organize package deliveries—sellers who pay Etsy to use its platform handle all of these things for their own Etsy stores. As a result, Etsy can convert the majority of its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) (around 90% in the latest quarter) into free cash flow.
Another reason to love Etsy is the company's ability to attract repeat customers and attract new buyers. While the company's number of active buyers has declined slightly -- down 0.4% to about 91 million in the most recent quarter -- customers overall have remained loyal. Etsy's active buyer retention rate and the number of new buyers it adds each quarter remain above pre-pandemic levels. As the economic backdrop improves, these trends are likely to strengthen and should lead to future growth.
With these two points in mind, Etsy trades at just 10 times forward earnings, down from more than 16 times early last year, and looks like an absolute bargain right now, making it a top consumer-oriented stock to buy and hold. .
Fans of the comfortable and stylish leggings and other athleisure pieces flock to lululemon sport (NASDAQ: LULU). Its focus on product quality has helped it become a leader in the premium segment, allowing the company to stand out and build an impressive record of profitability.
The company's revenue and net income have climbed into the billions of dollars in recent years, with trailing 12-month free cash flow exceeding $1.5 billion. Lululemon has successfully maintained high gross profit margins, exceeding 57% in each quarter of the past two years, supporting a high level of profitability.
Growth has been slow in the Americas region, which accounts for the lion's share of the company's revenue, but both international revenue and international comparable sales grew by double digits in the latest quarter. As a result, Lululemon's earlier plans to increase its international presence are working, with the company now focusing on boosting U.S. sales.
Lululemon's recent news gives us reason to be optimistic. The company reported a successful holiday season, allowing it to boost revenue, earnings per share and gross margin guidance for the fourth quarter of 2024. The new forecast implies revenue growth of 11% to 12% year over year.
In addition, Lululemon's own actions also demonstrate its confidence in the future. The company repurchased 1.6 million shares in the third quarter, and early last month, the board approved a $1 billion increase in its stock repurchase program.
Speaking of buying the stock, at today's valuation, which trades at 27x forward earnings estimates compared to 40x about a year ago, Lululemon stock looks like it's on sale right now.
Before buying Etsy stock, consider the following factors:
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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has posts and recommends Etsy and Lululemon Athletica. The Motley Fool has a disclosure policy.
2 Growth Stocks Drop 20%, Buy Now Originally Posted by The Motley Fool