This has been a frustrating year for investors, but at the same time, those with money to invest have the opportunity to grow their money in exciting ventures at prices unimaginable just a few years ago.
Scrolling through a list of growth stocks that are down more than 70% from their highs, Soft (CHWY 0.51%), revolution group (RVLV 1.11%)and Roblox (RBLX 0.79%) could be incredible values right now. Here’s why three Motley Fool contributors think these stocks will rebound and pay off for long-term investors.
Chewy: regular customers will bring the stock up
John Ballard (Chewy): Chewy’s stock has fallen 70% from its 2021 all-time high, but sales have continued to grow. The company’s recurring revenue from customers who automatically receive pet food each month gives Chewy a major advantage in a faltering economy.
No matter how weak the economy, pet owners need to buy pet food, and Chewy makes it easy. In the most recent six-month period, Autoship sales totaled 72.6% of Chewy’s business, down from 69.8% a year ago. Chewy continues to expand beyond hard goods into services, such as pet insurance and health care, which could significantly boost its profit margin, as it already appears to be doing.
In the last published six-month period, the profit margin reached 0.8%. That’s a healthy jump from the 0.5% in the year-ago quarter, translating to an 85% increase in year-over-year dollar earnings.
In addition to expanding into insurance and healthcare, Chewy is investing in several other areas to reduce costs and improve margins, such as expanding fulfillment capacity and improving transportation efficiency. in moving inventory across the country.
Chewy builds an e-commerce machine. Pet owners love the convenience of keeping their favorite pet food brands on a recurring shipment, and management is capitalizing on that customer loyalty with ancillary services that should quickly boost profits and increase the inventory over time. These qualities make Chewy an obvious buy in this market.
Revolve: buy now before this company takes control of purchases
Jennifer Saibil (Revolve Band): Much ink has been spilled on how to invest properly when the economy is under pressure, which is the current situation. There’s a common thread running through many of Wall Street’s top takes: strong companies that fuel future trends are good bets. Online fashion retailer Revolve Group is one such company poised to capture market share and survive tough times.
Revolve Group is uniquely positioned to thrive in the digital age with its AI-powered operating systems reaching digital-centric buyers. Technology underpins everything this company does, and digital orientation combines front-end and back-end systems with influencer marketing and rapidly changing styles. This is how it is able to absorb a very high percentage of full-price sales – 87% in 2021 – while other retailers put products on sale to balance too much inventory with reduced spending.
Sales growth was strong through 2022 after a major shift to digital shopping due to the pandemic. That has slowed as Revolve struggles with comparisons to last year’s robust sales and as the world grapples with economic instability. Second-quarter sales were up 27% year-over-year, which was healthy, but management expects that to slow in the third quarter.
Net income was positive in the second quarter, but declined under pressure from higher shipping costs and a higher than expected product return rate. As 2023 approaches, if the economy recovers, Revolve’s sales and revenue should begin to rise again.
But it’s the long-term prospects that are exciting. Even in this environment, the number of active customers is increasing, as is the average order value and orders per customer. Revolve has a loyal, active and growing fan base which is the foundation of its business. As the company continues to connect with its audience and provide them with a better shopping experience, the future of Revolve looks bright.
Roblox: This Metaverse Company Is Selling At A Great Price
Parkev Tatevosyan (Roblox): Roblox is one of my favorite battered growth stocks that feels like a buy now. The metaverse pioneer saw its stock price drop 73% from its peak. It thrived early in the pandemic as millions flocked to its platform to pass the time, but as economies reopened, customer and revenue growth slowed.
Still, since its last update in September, Roblox has 59.9 million daily active users and Roblox has done a great job extracting revenue from its customers. It does this by selling an in-game currency called Robux that players need for premium items and experiences on the site.
Roblox grew its annual revenue from $325 million in 2018 to $1.9 billion in 2021. This is proof that players find value in paying for the added privileges. However, part of Roblox’s player base is playing for free. To get revenue from these players, Roblox implements several advertising programs.
Of course, Roblox is facing headwinds as consumers have more options for what to do with their time and money, but I think the 73% stock price selloff provides a point of departure. attractive entry for investors.