I don’t really think any investor should forget this Amazonas if anyone could. Amazon has incredible future potential in e-commerce, artificial intelligence (AI) and more. Amazon shares are up 31% this year and are currently the leading player in two of the world’s most important industries. Sixty-three of 67 analysts call Amazon stock a buy, while the other four call it a hold.
However, the staggering gains that investors have enjoyed in the past are unlikely to be repeated; Amazon is already a huge company, and as much potential as it has, it’s building on a huge foundation. Doubling or tripling sales at current levels will take longer than when Amazon started.
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Investors looking for strong growth are more likely to find it in younger stocks with huge growth opportunities. If you’re looking for a candidate for your portfolio, I have some ideas for you. To consider elf Beauty (NYSE: ELF) And Rotate group (NYSE: RVLV)two young companies using digital platforms to compete with market leaders.
The beauty industry has been dominated by a few giants for decades, but the digital age is breaking down the hierarchy. Industry leader Estee Lauder has spent years acquiring luxury brands and concentrating its dominance L’OréalRevlon and a few others are the top names in mass beauty and have also been buying up the competition to consolidate. They have created formidable competition and strong barriers to entry.
elf has carved out a niche by focusing on digital and social media and creating an omnichannel strategy that appeals to the young target group. It’s still a small company compared to its larger peers, with a fraction of their sales, but it’s growing much faster than almost any other cosmetics brand these days. It has gained market share, rising from fifth to second in dollar share of mass cosmetics brands from 2022 to the most recent quarter, and its skincare business is up 45%, while the industry as a whole is up 45% has increased. has increased by 1.2%.
In an economic climate that is still under pressure, Elf shows incredible resilience. Revenue rose 50% year over year in the first fiscal quarter of 2025 (ended June 30), and gross margin grew 0.8 percentage points to 71%. Operating income fell, as did earnings per share (EPS), but both were positive and healthy, and management raised its guidance for full-year revenue, operating income and EPS.
Here’s how Amazon and Elf’s revenue growth has trended over the past four quarters:
|
Metric |
Q3 24 |
Q2 24 |
Q1 24 |
Q4 23 |
|---|---|---|---|---|
|
Amazon sales growth |
11% |
10% |
13% |
14% |
|
Elf’s turnover growth |
50% |
77% |
85% |
76% |
Data source: Amazon and Elf quarterly reports. Eleven quarters are Q1 25, Q4 24, Q3 24 and Q2 24.
Part of the reason why Elf’s revenues were lower is the acquisition of a new skincare brand, Naturium, which is already adding a lot to the business; it was responsible for 16 percentage points of the first quarter sales increase. This is short-term pressure for long-term profits, and management expects full-year earnings per share growth.
Its revenues have exceeded Amazon’s for the past three years:
AMZN Operating Income Data (TTM) according to YCharts.
elf is growing much faster than Amazon, but its shares trade at a one-year price-to-earnings ratio of 25, or cheaper than Amazon’s 33. With elf in rapid growth mode and a lot of market share still to gain, elf share can grow. be an incredible addition to a growth-oriented portfolio.
Just as Elf leveraged its digital, social media-powered platform to become a leader in beauty, Revolve has developed an artificial intelligence (AI)-based platform to emerge as a strong competitor in fashion . It also has a large social media presence and partners with influencers and celebrities, and its all-digital operations lend themselves to profitability.
Like most retailers, the country has weathered inflation. It reaches a large audience of fashion lovers who are willing to pay full price for trendy clothes, and who have cut corners. But perhaps the tide is finally starting to turn.
Revenue rose 3% year-over-year in the second quarter, the first year-over-year increase since 2022, and net income more than doubled from last year. As usual, customer statistics tell the real story. Revolve continues to add active customers despite the challenging operating environment, with an increase of 5% year over year and average order value up 2%.
Some of the positive trends are due to a decline in returns, which bodes well for the future. Management has made significant strategic efforts to curb returns rates while improving the shopping experience, such as improving sizing advice and focusing personalization on items that are less likely to be returned. It also developed an internal search function that generates higher sales at a lower cost.
Revolve’s sales are still a fraction of the sales of apparel leaders such as Hole And Nikeand as a smaller player with trends moving in its favor, it has much more room to grow. As inflation decreases and interest rates rise, it will likely move higher. It could also start to perform better as we get closer to the major holidays.
Since Revolve is under immense pressure in the current operating environment, you should go back to pre-inflation to see how it beat Amazon under better conditions:
AMZN earnings (annual) data by YCharts.
You would also have to imagine that it could go back again, and with revenues picking up again, there are signs that this is possible.
Revolve stock trades with a one-year price-to-earnings ratio of 36, or slightly more than Amazon’s. It’s only a good deal if you can imagine its potential in a few years, and if you can, you might understand why it deserves that premium.
Consider the following before purchasing shares in elf Beauty:
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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. Jennifer Saibil has no positions in any of the stocks mentioned. The Motley Fool holds positions in and recommends Amazon, Nike, Revolve Group and elf Beauty. The Motley Fool has a disclosure policy.
Should You Forget Amazon? Why these unstoppable stocks are better buys. was originally published by The Motley Fool
