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3 Dirt-Cheap Stocks That Are an Eye-Popping Bargain

By Taylor Carmichael - Apr 30, 2020 at 6:06AM

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Some high-growth names in the beauty and fashion industries are trading at a discount.

Right now, much of humanity is hunkered down, hiding from the world and that ugly COVID-19 bug. We're staying indoors, in our sweatpants, staring at video screens all day. We're shopping virtually, we're working virtually, and we're going to the doctor virtually. And when work is over, we're playing virtual games. So stocks that help us do all these things are up big in this environment.

Over the next few months, we should see a big shift in our society. Fears of COVID-19 will recede. Already the weather is nice, and people are starting to hit the beaches. At some point the restaurants and bars and nightclubs will reopen, and society will want to go out. And we'll want to look good while we're doing it. That's why I think Farfetch (FTCH -1.62%)InMode (INMD -0.11%), and SmileDirectClub (SDC 6.94%) are all strong buys right now.

Cartoon of models walking down runway

Image source: Getty Images.

Why I'm bullish on this high-fashion retailer

Farfetch is a virtual retailer for expensive clothes. So far its stock is doing just fine during this lockdown. Shares are up 23% in 2020, trouncing the market. And yet the stock is still cheap, trading at less than 4 times sales, and its share price is down 51% from a year ago. 

How is business doing? So far in the first quarter, sales are holding up pretty well. The company reported preliminary results a couple of weeks ago, and its numbers are meeting or exceeding guidance for the first quarter. 

That's not too surprising. Unlike its brick-and-mortar counterparts, Farfetch is still open for business. As CEO Jose Neves said on the most recent conference call, "We believe our distributive platform model is particularly well suited to weather this issue."   

In that regard, Farfetch is similar to Wayfair, or Carvana. All three companies are virtual retailers that specialize in selling high-end goods online. Farfetch is a fashion marketplace, Wayfair offers furniture, and Carvana sells used cars. Both Carvana and Wayfair were slammed by COVID-19 fears, and both stocks have come roaring back.

Farfetch had strong numbers in 2019, selling more than $2 billion in gross merchandise value (GMV) -- up 52% year over year. At the beginning of the year, management was estimating that number would jump to over $3 billion in 2020. However, because of the COVID-19 outbreak, Farfetch has suspended its guidance for 2020.

While the immediate future is murky, the long-term trends for Farfetch remain highly positive. The market opportunity for high fashion online is $100 billion. If our world quarantine hurts demand for high-priced clothes in the short term, that demand will return once the situation normalizes. Meanwhile, it's entirely possible that this lockdown will accelerate the move to this virtual enterprise. For instance, harrods.com is now live on the Farfetch platform, while Harrods the physical store is closed.     

InMode's stock is very cheap right now

The stock of medical device maker InMode is down more than 35% in 2020. This Israeli company specializes in minimally invasive aesthetic medical tools. Using its radio-frequency devices, doctors can perform liposuction and other surgical procedures while avoiding all the risks of plastic surgery.

InMode is growing fast, with 63% revenue growth in its most recent quarter. And the company's bottom line is just as nice, with profit margins over 39%.

Not surprisingly, the stock was a big winner after its IPO in 2019, almost quadrupling in three months. While COVID-19 has sent the stock crashing down from its highs, InMode is actually still up 66% in its first year as a public company, stomping the S&P 500.

InMode has net cash of almost $200 million. At a market cap of $770 million, the company is valued at 14 times earnings and less than 4 times its cash on hand. That's pretty cheap for a market leader that is revolutionizing cosmetic surgery. While many of its customers are closed right now because of COVID-19, the high demand should resume once the world reopens for business. InMode is a highly profitable, fast-growing business that is on sale right now.

SmileDirectClub will bounce back strong

Unlike InMode, SmileDirectClub is way down from its IPO, having dropped 62% in less than a year. The stock finished its first day trading at $16 a share, and that price was cut in half by December. It quickly doubled in 2020, only to crash again when COVID-19 hit. It's now trading at $6 a share, up from $4 just a few weeks ago.

Why all this volatility? SmileDirectClub is a battleground stock with a high short interest, meaning some investors are betting against it. The fast-growing company is upending the trillion-dollar market for orthodontics. It's a direct-to-consumer outfit that is creating teeth aligners with 3D printing technology, and selling its aligners directly to the public. And the company has set up a telehealth network -- similar to Teladoc (TDOC 0.15%) -- for its orthodontists.

The company has already helped over a million customers straighten their teeth. SmileDirectClub makes a 3D scan of your teeth at one of its many SmileShops, and then uses that image to create an aligner designed specifically for your bite. That's why COVID-19 hit the stock hard -- all the SmileShops have been temporarily closed.

During this crisis, the company has shifted its operations to help others. It has used its 3D manufacturing facilities to create over 35,000 face shields for healthcare workers across the country, and also opened up its telehealth platform so that dentists and orthodontists can visit with their patients remotely. 

SmileDirectClub will start re-opening its SmileShops in May. The stock ran up 20% on the news.

             

Taylor Carmichael owns shares of Carvana Co., Farfetch Limited, and SmileDirectClub, Inc. The Motley Fool owns shares of and recommends Wayfair. The Motley Fool recommends Farfetch Limited. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Farfetch Limited Stock Quote
Farfetch Limited
FTCH
$9.99 (-1.62%) $0.17
InMode Ltd. Stock Quote
InMode Ltd.
INMD
$36.94 (-0.11%) $0.04
SmileDirectClub, Inc. Stock Quote
SmileDirectClub, Inc.
SDC
$1.85 (6.94%) $0.12
Wayfair Inc. Stock Quote
Wayfair Inc.
W
$68.96 (0.49%) $0.34
Carvana Stock Quote
Carvana
CVNA
$51.35 (-1.44%) $0.75
Teladoc Health, Inc. Stock Quote
Teladoc Health, Inc.
TDOC
$40.38 (0.15%) $0.06

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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