Even the best growth stocks see their shares fall. But just because their share price falls, doesn’t necessarily mean the stock is down for good. In fact, Amazon The company lost as much as 90% of its value over a two-year period in the early 2000s, but then grew into the nearly $2 trillion company it is today.
Let’s look at three consumer staples growth stocks that may be falling, but they’re not falling.
1. eleven Beauty
Down nearly 30% from its recent high, eleven Beauty (NYSE:ELF) remains one of the best growth stories in the consumer goods sector. By using influencers and creating exact copies of popular prestige cosmetic products, the company has been able to gain shelf space and a large share of the mass market cosmetics. In fact, it has become the number 1 cosmetics brand among teenagers, according to consumer surveys.
While growth may be slowing from the breakneck pace of recent years, elf still has a long way to go. It has made strong early steps with international expansion, but it is still only in a few markets. The company has over-indexed on the Spanish-speaking community in the US, so Latin America could be a big opportunity for the future.
Meanwhile, the company has only recently entered the skincare space. With only a 2% market share in skincare in the U.S., the potential to gain a share of this category is a huge opportunity. Given the company’s performance in the cosmetics space over the past few years, there’s no reason to believe it won’t have the same success in skincare.
These growth stocks are trading at a price-to-earnings-growth ratio (PEG) of less than 0.7 and are very attractively priced after the recent sell-off. A PEG below 1x is generally considered attractive, but for a growth stock it is a bargain bin.
2.Nike
After reporting just 1% constant currency revenue growth for fiscal 2024, which ended in May, and forecasting revenue to decline by a mid-single digit percentage in fiscal 2025, it may be best to Nike (NYSE: NKE) a former growth stock. After all, it hasn’t shown much growth lately.
However, after the stock’s latest sell-off, investors can buy the iconic brand at one of its lowest valuations in a long time, with a price-to-earnings ratio of less than 20.
But let’s not write Nike off just yet. One of the best ways for a management team to get a stock back on track is to provide extremely conservative guidance and then quickly jump over the low bar that has been set. Nike appears poised to do just that.
One reason for this is that the company should see an Olympic boost, as it spends more money on the event than ever before. Nike has also launched a number of new products aimed at the event.
Meanwhile, research firm Similarweb showed that Nike’s strategy paid off, with a huge spike in visits to its site and solid conversions to sales. In China, which has been a problem area, the company saw a jump in sales of custom T-shirts featuring women’s gold-medal tennis player Zheng Qinwen, whom it sponsors.
Given the valuation and low expectations, now may be the time to ‘just do it’ and add Nike to your portfolio as the company looks to become a growth company again.
3. Dutch Bros.
Shares of Dutch Bros (NYSE: BROS) was crushed after the coffeehouse operator told investors that new store openings this year would fall at the lower end of its guidance as it looked to optimize its real estate strategy. However, the company’s long-term outlook remains intact as it still has a long road of expansion opportunities ahead of it.
The company’s store format is on the smaller side, typically ranging from 800 square feet to 1,000 square feet, with multiple drive-thru lanes and a pickup window. This small size allows for a relatively low-cost build-out program while creating solid throughput, as evidenced by its $2.0 million average unit volume (AUV), which measures the average sales of its stores.
With just 912 locations at the end of Q2 (612 of which are company-owned), the popular coffee chain that started in Oregon is still primarily found in the Western U.S., though it does have locations in places like Florida, Kentucky, and Tennessee. That makes it a nice regional-to-national expansion story.
The company is also just starting to implement initiatives like mobile ordering, which should be a nice boost to sales. It also shows that the company is still in the early stages of taking advantage of the technological improvements that many other chains have already implemented. This creates future growth opportunities.
Dutch Bros trades at a similar forward price-sales ratio (P/S) as its competitors Starbucks but should show much more growth as it is still in the early days of expansion. This would make me buy the stock due to the recent weakness.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Nike, Starbucks and elf Beauty. The Motley Fool recommends the following options: long January 2025 $47.50 calls on Nike. The Motley Fool has a disclosure policy.
3 Growth Stocks Wall Street May Be Sleeping On, But I Aren’t was originally published by The Motley Fool
