There's something special about doubling your investment, and the sooner the better! In 2019, there were plenty of stocks that more than doubled, and investors no doubt wish they bought them at the start of last year. Three such stocks are self-described camera company Snap (SNAP 27.63%), mattress maker Tempur Sealy International (TPX 0.06%), and used car seller Carvana (CVNA 8.79%).
All three of these stocks could have doubled your money in 2019, but each would have lost at least half your investment in 2020. The market is swinging violently, but each has been down as much as 50% at some point, and no doubt many investors are wondering if now is the time to buy for future market-beating returns. Let's take a look.
Image source: Getty Images.
1. Snap
Shares of Snap, the parent company of the Snapchat app, were up almost 200% in 2019. But 2020 is different story. With the coronavirus bear market, shares have been down as much as 50%.
Here are two things to like about Snap. First, its user growth accelerated in 2019, growing 17% to 218 million daily active users, an impressive feat considering some once predicted the demise of Snapchat. Better still, Snap's revenue growth outpaced user growth, since management better understands how to monetize its platform. Overall, revenue grew 45% to $1.7 billion in 2019.
But profitability is a lingering concern. Management heralds its march toward adjusted EBITDA profitability. In fairness, it did make dramatic improvements in certain metrics in 2019. Adjusted EBITDA grew 65%, and free cash flow improved 58%. But in the end, it still lost $202 million in adjusted EBITDA, was $341 million free cash flow negative, and had a massive net loss over $1 billion.
The majority of Snap's net loss is attributable to stock-based compensation for research and development. In 2019, the total came to $686 million. Currently it's experimenting with original video content, developer tools, maps, and more. In other words, research and development remains a large expense, affecting profitability by generally accepted accounting principles (GAAP).
Without better progress toward GAAP profitability, I'm still leery of a Snap investment.
2. Tempur Sealy International
Perhaps the most surprising double of 2019 came from Tempur Sealy. In 2017, it ended its relationship with key distribution partner Mattress Firm, leading to a pessimistic valuation of the stock throughout 2018. Mattress Firm subsequently went bankrupt, causing investors to question the long-term viability of the traditional retail mattress sector given the rise of direct-to-consumer competitors.
But after reporting strong financial results, and patching its relationship with post-bankruptcy Mattress Firm, Temper Sealy saw its stock soar. Net sales grew 15% in 2019, while earnings per share grew 88% to $3.42.
Now the stock is down over 50% in 2020. Understandably, investors are concerned about what the COVID-19 pandemic could do to mattress sales.
Tempur Sealy was performing well, so I'd say the sell-off is overdone. Also, it now trades under 10 times trailing earnings, placing it firmly in value stock territory. But while it could bounce back, it's important for investors to ask if this is a company worth owning for the long haul. The mattress industry isn't a high-growth business, and that can lead to cyclical sales that impede long-term stock performance. Personally, I wouldn't buy shares simply because they're cheap.
A Carvana car vending machine. Image source: Carvana.
3. Carvana
If you've never heard of Carvana, don't feel bad; the company is only seven years old. But it generated $3.9 billion in 2019 revenue (good for triple-digit revenue growth) and sold over 177,000 used cars, so chances are this company will become a household name in the near future. It turns out people wanted a better used-car shopping experience. And Carvana, with its 100% digital experience, is revolutionizing the market.
In 2019, Carvana entered many new markets, which explains the stock's 181% gain for the year. All told, the company entered 61 new markets during the year, up from just 85 at the end of 2018. By opening these new markets, Carvana now serves approximately 69% of the U.S. population, and has important attainable 2020 goals. In 2020, it's targeting new markets to make its service available to 75% of Americans, supporting the potential for 500,000 annual car sales -- 25% of the way toward its long-term annual goal of 2 million vehicles.
But during this bear market, Carvana's stock fell over 70% from February highs. It's simple to understand investor fears. Some believe the U.S. and global economies are headed toward a recession. That's not exactly a great time to be in the used car business. Consider that the company currently has a vehicle inventory of $763 million. This is listed as an asset on the balance sheet. But when inventory isn't moving, it's a practical liability.
At this point, though, it's still only an assumption that Carvana's sales could be disrupted in 2020. It's certainly worth watching in coming quarters. But one could argue that Carvana's digital experience with car pickup and delivery could actually steal used-car market share during this time, improving a long-term bullish thesis.
