Stocks can rise and fall in the short term for many reasons, but what makes a stock truly unstoppable is the company’s long-term growth prospects. Stocks will ultimately track a company’s revenue and earnings growth over the long term, so if you can invest in growing companies at discounted valuations, you could be on your way to big gains.
Wall Street is now offering investors a great opportunity in two growing consumer brands. Shares of energy drink maker Celsius holdings (NASDAQ: CELH) and sportswear brand Lululemon Athletics (NASDAQ: LULU) are currently trading 50% below their previous peak. Here’s why Mr. Market has it all wrong.
1. Celsius Holdings
Identifying emerging consumer brands before they grow into larger companies is one of the most rewarding types of investments you can ever make. Celsius Holdings has enormous long-term potential, as evidenced by the stock’s phenomenal 2,700% return over the past five years.
Celsius initially focused on nutritional supplements in the fitness market, but in recent years sales growth has exploded as the business expanded into energy drinks. After a distribution agreement with PepsiCoThe company’s revenue doubled to $1.3 billion in 2023.
The PepsiCo deal is a big advantage that should provide a lot of growth in the long run. However, it is also the reason why Celsius shares have fallen this year. As the company’s largest distributor, PepsiCo and recent inventory adjustments weighed on Celsius’s first-quarter revenue growth and sent the shares lower.
Still, Celsius reported robust 37% year-over-year revenue growth in the quarter. This growth rate points to a big opportunity going forward. Celsius has gained significant market share in the energy drink market. It differentiates its brand from competitors by making products without artificial colors or sugar, which is clearly resonating with consumers.
There is nothing that has changed Celsius’ growth prospects — it just offers investors better value. This could provide excellent returns for investors as the company continues to build its brand in international markets.
The stock still trades at a relatively high forward price-earnings (P/E) ratio of 43, but analysts still expect the company’s profits to more than double over the next few years as Celsius expands its margins. This should provide a strong return based on the current share price.
2. Lululemon Athletics
Leading apparel brands appear to have hit a wall this year. Weak sales led Lululemon to report lower-than-expected revenue earlier this year, sending its stock down 50% from its previous peak. However, Lululemon continues to report industry-leading growth, signaling a strong brand that deserves a higher valuation on Wall Street.
Lululemon still posted 10% year-over-year revenue growth in the latest quarter, significantly stronger than the low single-digit growth of Nike And Adidas. Lululemon said it missed some sales opportunities in its women’s assortment last quarter, partly due to out-of-stock items. Otherwise, sales growth might have been somewhat better.
The company has a history of bringing innovative new styles to market, which has helped it grow its revenues by an average of 20% per year over the past 10 years. With annual sales of just under $10 billion in a $300 billion sportswear market, the company should be able to deliver double-digit growth for a long time to come.
Analysts expect the company’s earnings to grow at an annual rate of 11%, though estimates were for 17% growth by the end of 2023. Current estimates are of course affected by the current sales environment.
Regardless of which estimate turns out to be correct, the modest forward price-to-earnings ratio of 17 is a more than fair price for shares in a company that has long enjoyed above-average growth and continues to offer enormous opportunities.
Should You Invest $1,000 in Celsius Now?
Before buying Celsius stock, you should consider the following:
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John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Celsius, Lululemon Athletica, and Nike. The Motley Fool recommends the following options: long January 2025 $47.50 calls on Nike. The Motley Fool has a disclosure policy.
2 Unstoppable Growth Stocks to Buy on a Dip was originally published by The Motley Fool
