Investing in companies with robust growth potential and holding onto those investments for the long term is a proven strategy for building lasting wealth. While predicting a stock’s performance in any given year is challenging, identifying companies with strong long-term prospects and improving financial results in the near term can enhance the likelihood of making timely investments.
Recently, three Motley Fool contributors were tasked with selecting three stocks they believe could outperform the major indexes this year. They singled out e.l.f. Beauty (NYSE: ELF), Revolve Group (NYSE: RVLV), and Sweetgreen (NYSE: SG) for their promising qualities.
e.l.f. could become the top beauty brand in the world one day
John Ballard is bullish on e.l.f. Beauty, noting its remarkable stock performance with a 500% increase over the past three years. Despite recent fluctuations, Ballard sees this as an opportune moment to invest, given the company’s early-stage global expansion plans and accelerating sales growth.
In its latest reported quarter, e.l.f. Beauty experienced an impressive 85% year-over-year increase in sales, solidifying its position as the third-largest brand in the U.S. cosmetics sector. The company’s success in diversifying into skincare products reflects its growing consumer appeal, attributed to its focus on offering quality items at competitive prices coupled with effective marketing strategies.
Furthermore, e.l.f. Beauty demonstrates substantial international growth potential, with its overseas sales expanding at a 37% annualized rate over the past five years, accelerating to 113% in the most recent year.
While the stock’s valuation appears steep, boasting a price-to-earnings ratio of 74.5, Ballard believes it’s justified, particularly given the forward P/E ratio of 48 aligns reasonably with Wall Street’s forecasted long-term earnings growth of 35% per year. He anticipates e.l.f. Beauty stock to outperform major indexes in 2024 and beyond.
The future of fashion
Jennifer Saibil highlights Revolve Group as a pioneer in the apparel industry’s shift towards digital channels and artificial intelligence (AI). With its two luxury women’s wear websites, Revolve and FWRD, the company’s AI-driven model resonates strongly with its expanding customer base.
Utilizing AI extensively across its operations, Revolve leverages its two-decade-long experience in the fashion industry to curate styles based on deep data insights. By operating exclusively online, Revolve bypasses the constraints of physical retail, swiftly delivering designs to its customers. Last year, it made waves with the first-ever AI billboard campaign and continues to integrate AI into marketing, events, and operations.
Revolve’s innovative marketing approach includes celebrity and influencer affiliate marketing, design collaborations, and capsule collections. Targeting millennial and Gen Z consumers online, the company fosters engagement through physical events and parties.
While facing a temporary decline in revenue and net income due to reduced discretionary spending among core customers, Revolve maintains positive customer metrics. Active customers and total orders placed have increased, indicating sustained customer loyalty despite a slight decrease in average order value.
Saibil believes that Revolve’s resilience and strong marketing strategies position it well for future growth, especially as economic conditions improve. The company’s ability to provide beloved products to its customer base suggests promising potential for future success.
A fast-casual star with a twist
Jeremy Bowman discusses the potential of Sweetgreen, a fast-casual restaurant disruptor, which has faced challenges since its initial public offering but is now garnering investor attention.
The stock has doubled this year following a strong fourth-quarter earnings report, showcasing 29% revenue growth to $153 million and an average unit volume comparable to industry leader Chipotle Mexican Grill.
Sweetgreen’s innovative concept as a fast-casual salad chain positions it as a promising growth story, evident in its high average unit volume reflecting strong demand for its offerings.
Moreover, Sweetgreen is rolling out “Infinite Kitchen,” a robotic salad assembly platform aimed at enhancing order preparation, throughput, and reducing labor expenses. With plans to expand this technology to several locations, it could significantly impact the company’s profitability and valuation.
While it may take time to realize the full benefits, investors have responded positively to Sweetgreen’s recent performance, despite the stock remaining down 57% from its post-IPO peak.
