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3 top growth stocks that could make rounds on the market in 2024

One of the best ways to build lasting wealth is to invest in growing companies and hold onto those stocks for years to come. While it’s difficult to know how a stock will perform in any given year, identifying companies with great long-term prospects that are also showing improving financial results in the short term can increase your chances of finding timely buys.

Three Motley Fool contributors were recently asked to select three stocks that they think could outperform the major indexes this year. This is why they chose elf Beauty (NYSE: ELF), Rotate group (NYSE: RVLV)And Sweet green (NYSE:SG).

Eleven could one day become the best beauty brand in the world

John Ballard (elf Beauty): Shares of this cosmetic brand have exploded, rising 500% in the past three years. Elf Beauty reported accelerating sales growth last year, driven by an effective distribution strategy at major retailers such as Goal. But shares have fallen recently, making this a good time to buy as the company is in the early stages of global expansion.

Revenue grew by a whopping 85% year-over-year in the most recently reported quarter. It is now the third largest brand in the US cosmetics category.

Importantly, Elf Beauty’s success in expanding into areas such as skin care is a sign of a brand becoming more widely known among consumers. These results come from a focus on offering quality products at affordable prices, complemented by great marketing.

The company also shows enormous international growth potential. Over the past five years, international sales have grown at an annual rate of 37%, and that growth rate accelerated to 113% last year.

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The stock’s valuation is expensive, with a price-to-earnings ratio of 74.5, but I think it’s worth paying for it. The forward price-to-earnings ratio of 48 seems quite reasonable, based on Wall Street’s long-term earnings growth forecast of 35% per year. Investors can expect eleven Beauty stocks to outperform the major indexes in 2024 and beyond.

The future of fashion

Jennifer Saibil (Revolve group): Like virtually every sector, the apparel industry is moving towards greater use of digital channels and artificial intelligence (AI), and Revolve Group is leading this change. Revolve operates two luxury women’s clothing websites, Revolve and FWRD, and its differentiated model – powered by AI – resonates with its loyal and growing customer base.

Revolve uses AI across its business for merchandise selection, but it goes deeper than that. The company has been in the fashion industry for twenty years and has a wealth of data that it uses to design and produce the styles its customers want. Because it’s all online, it isn’t saddled with the cost or timeframe of getting its clothes into physical stores — it can put its designs online and offer them to shoppers as soon as they’re manufactured. Last year it created the first-ever AI billboard campaign and is using AI in marketing, events and operations.

In addition to its AI efforts, the company has an innovative marketing model. It works through affiliate marketing from celebrities and influencers, and has design collaborations and capsule collections with its celebrity partners. It reaches its millennial and Gen Z target customers where they are online, hosting physical events and parties to deepen its relationships.

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Overall, Revolve’s strategy of delivering luxury goods to mass market consumers has led to high sales growth. However, these core customers are currently pulling back on discretionary spending. Revolve’s fourth-quarter revenue fell 1% year-over-year and net income fell 56%.

However, customer statistics tell a different side of the story. The number of active customers increased by 9% year over year and the total number of orders placed increased by 5%. Average order value dropped 2%, which makes sense: shoppers still love Revolve, but are spending less.

That’s a good indication of Revolve’s potential as the economy takes shape. The marketing strategy is working and Revolve is well positioned to move up the ranks as it offers its customers products they love.

A fast-casual star with a twist

Jeremy Bowman (Sweet Green): Sweetgreen has had a tough time since its IPO, but investors finally seem to see the opportunity in the fast-casual restaurant disruptor.

The stock has already doubled this year after a strong fourth-quarter earnings report with revenue growth of 29% to $153 million and average unit volume of $2.9 million, which compares with Chipotle Mexican Grillthe leader in the fast-casual segment.

Based on the concept alone, Sweetgreen is a promising growth story. It is pioneering a new category as a fast-casual salad chain, and its high average unit volume clearly shows that there is demand for its offerings.

However, there’s another reason why Sweetgreen was able to keep rising and making rounds in the stock market this year.

The company has started rolling out a technology it calls “Infinite Kitchen” – essentially a robotic salad assembly platform that speeds up order preparation and throughput and reduces labor costs.

After opening two restaurants with robot kitchens, Sweetgreen plans to open seven to nine locations this year and modernize two to four others. That is a significant acceleration of the platform.

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If it delivers the kind of results the company has forecast, it could be a game-changer for Sweetgreen, which would likely be a much more valuable company if it could drive profitability in addition to revenue growth and high average unit volumes.

It may take a few quarters, but investors seem willing to reward the stock for good news based on the jump following its fourth-quarter earnings report, and Sweetgreen stock is still 57% below its post-IPO peak.

Should you invest $1,000 in Elf Beauty now?

Consider the following before purchasing shares in elf Beauty:

The Motley Fool stock advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and elf Beauty wasn’t one of them. The ten stocks that survived the cut could deliver monster returns in the coming years.

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*Stock Advisor returns April 8, 2024

Jennifer Saibil has no positions in any of the stocks mentioned. Jeremy Bowman has positions in Chipotle Mexican Grill, Revolve Group and Target. John Ballard has positions in eleven Beauty. The Motley Fool holds positions in and recommends Chipotle Mexican Grill, Revolve Group, Target and elf Beauty. The Motley Fool recommends Sweetgreen. The Motley Fool has a disclosure policy.

3 Top Growth Stocks That Could Make Rounds of the Market in 2024 Originally published by The Motley Fool

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