The stock market has averaged annual returns of about 10% for decades, enough to double your money every seven years. But it’s not hard to grow your money even faster if you choose the right investors. Growth stocks.
To give you some ideas, three Motley Fool contributors think: On Holding (NYSE: UNON), MercadoLibre (NASDAQ: MIL)and Dutch brothers (NYSE: BROS) can help you achieve this Above average returns. Here’s why.
Surpass the competition
Jennifer Seibel (On hold): On has distinguished itself as a distinct brand that challenges names like Nike and lululemon athleticaThis company is growing rapidly despite inflation, and it is just getting started. It has a tremendous growth trajectory as it builds its brand and attracts loyal fans, and growth-minded investors should take a look.
First, the numbers. Regarding the massive results announced in the second quarter of 2024, starting with a 29% increase in sales year-over-year (currency-neutral). Profitability was outstanding, with gross margin expanding from 59.5% to 59.9% and net income up 834%.
The results were so strong that Wall Street was willing to forgive its failure to deliver earnings — it had expected $0.18 in earnings per share, while Aon earned $0.17. A penny may seem small, but Wall Street has crushed stocks that were even lower.
Then comes the opportunity. Aon still has a small presence almost everywhere, and it’s wowing shoppers with its brand development through marketing efforts, new direct-to-consumer stores, and wholesale distribution deals. It keeps a close eye on current shopping trends, and sales are growing roughly equally through direct-to-consumer and wholesale channels.
While the company is best known for its shoes, many of which feature a unique sole that has become its signature, its premium branding is gaining traction and driving interest in its apparel and accessories. All of these categories are growing at a rapid pace, but apparel was a standout in the second quarter, growing 66% year-over-year, an opportunity On is capitalizing on. It recently launched a partnership with the famous actress Zendaya, for example, as a lifestyle and fashion icon, as well as a branded tennis collection.
Aon expects full-year sales growth of at least 30%, which likely led to a positive market reaction to the results, and is implementing new efficiency models in the second half of the year. Aon’s stock is expected to continue to rise this year and over the long term.
This stock has returned 1600% and is still undervalued.
John Ballard (Mercado Libre): Latin America is one of the fastest growing e-commerce markets in the world, and MercadoLibre has leveraged this to deliver tremendous returns to shareholders over the past several years.
There are several ways to generate revenue, which points to its growth potential. It runs a marketplace for buyers and sellers where it earns transaction fees. It also sells its own inventory to consumers through its order fulfillment system. But one of its fastest-growing services is in-store transactions through its financial offerings.
The market continues to show impressive growth in gross cargo volume. Brazil and Argentina, two of its largest markets, reported gross cargo volume increases of 36% and 252% year-over-year in the second quarter. This comes as the company introduces new shipping options and invests to expand its last-mile delivery capabilities.
MercadoLibre recently launched a fulfillment center in Texas, which will expand product selection for customers in Mexico. It’s an example of the potential MercadoLibre has to find ways to drive strong growth for shareholders.
The best part is that despite the stock’s 1,600% return over the past ten years, it is trading at Cheaper Price-to-Sales (P/S) ratio in years. It is currently trading at a P/S multiple of 5.6 – below its previous 10-year average of 10.
With the company’s revenue growth continuing at a robust pace—it was up 113% year-over-year in the most recent quarter (excluding currency movements)—the stock could deliver wealth-boosting returns to shareholders. All it needs to do is continue trading at its current price-to-sales multiple.
Coffee stock just heating up
Jeremy Bowman (Dutch Brothers): One of the most puzzling stock moves in recent weeks came after Dutch Bros reported second-quarter earnings.
The fast-growing coffee chain reported strong results, with revenue up 30% to $325 million on same-store sales growth of 4.1%. Its margins also improved, with GAAP net income more than doubling to $22.2 million. It beat estimates on both the full-year and final results.
However, despite the strong results and increased financial guidance, Dutch Bros stock fell after the update, falling 20% on August 8.
The reason for the sell-off appears to be that the company announced that the number of new stores it will open this year will now be at the low end of its forecast range of 150 to 165 stores. There was no specific reason for the update, and it doesn’t indicate any long-term problems the company may be facing. It could simply be construction delays, permitting or other real-world industry volatility.
Penalizing the stock for modestly slower expansion this year seems excessive and illogical, especially considering the company raised its full-year revenue guidance to $1.215 billion from $1.23 billion to $1.215 billion.
The stock still trades at a premium after the discount, but it also shows that the business is not lost on the company as it has managed to accelerate revenue growth even with the setback in new stores, an achievement that should be rewarded.
Dutch Bros. currently has less than 1,000 stores and has a long growth path ahead of it given established coffee chains like Dunkin’ and Starbucks We have several thousand locations in the United States.
Investors should take advantage of the sale and buy a stake in this fast-growing restaurant chain that is operating at full capacity.
Don’t miss this second chance for a potentially lucrative opportunity.
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*Stock Advisor returns as of August 12, 2024
Jennifer Seibel He has positions at MercadoLibre. Jeremy Bowman He has positions at MercadoLibre, Nike, and Starbucks. John Ballard The Motley Fool has positions in Dutch Bros and MercadoLibre. The Motley Fool has positions in and recommends Lululemon Athletica, MercadoLibre, Nike, and Starbucks. The Motley Fool recommends Dutch Bros and On Holding and recommends the following options: $47.50 long call options due January 2025 on Nike. The Motley Fool has Disclosure Policy.
3 Hot Growth Stocks You Can Buy Now Without Hesitation Originally posted by The Motley Fool
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