Some stocks are capable of generating above-average returns even when they're well-known. FAANG stocks are a good example of this.
However, if you want to increase your chances of finding multi-bagger stocks, you're better off looking in places that Wall Street hasn't yet. These are often small-cap stocks that the industry experts have dismissed, forgotten about, or simply overlooked. The great thing about these stocks is that once they start doing well, they tend to attract attention from professional investors, which can supercharge their returns.
Keep reading to see three hot stocks that are still under Wall Street's radar.
Carparts.com (NASDAQ:PRTS) has been around since the early days of the internet, but for most of its history it was an underperforming online auto parts seller named U.S. Auto Parts Network. That's changed in the last couple of years with a new management team, and a turnaround strategy that streamlined the business under one brand and added new distribution centers to speed up delivery and expand inventory. The company also changed its corporate name to Carparts.com last year.
The recent results speak for themselves. Last year, revenue jumped 58% to $443.9 million, and adjusted EBITDA increased from $4.5 million to $16 million. In the first quarter of 2021, that momentum continued with revenue climbing 65% to $144.8 million.
The company has benefited from the e-commerce boom during the pandemic, as well as elevated sales across the auto parts industry due to rising prices for both new and used vehicles and the boon of stimulus checks. Demand has been so strong that the company is struggling to keep up, as it is currently filling its new distribution center in Texas and expects to add one or two more in the next couple of years.
Carparts.com is forecasting long-term revenue in the 20% to 25% range and an adjusted EBITDA margin of 8% to 10%. Over the near term, it should continue to benefit from tailwinds in the auto parts industry, as the chip shortage is likely to affect auto manufacturing for at least the rest of the year.
The stock is covered by only a handful of analysts and trades at a price-to-sales ratio of just 1.5, which looks like a bargain considering its growth rate.
2. Children's Place
One of the most overlooked comeback stories of the pandemic has been Children's Place (NASDAQ:PLCE), which has jumped nearly 1,000% since its bottom last spring.
The omnichannel children's apparel chain was hit hard by the pandemic, but now appears to be thriving. In its first-quarter earnings report, the company posted adjusted earnings per share of $3.25, a quarterly record for the company, and trounced the analyst consensus at $0.06, showing Wall Street has essentially been asleep on the recovery story. Revenue in the first quarter was 5% above 2019 levels even as it had 27% fewer stores, which shows that the company is operating as efficiently as it ever has and that its store optimization strategy is delivering the desired results.
In fact, Children's Place used the pandemic to accelerate that strategy, closing down more stores and shifting sales to its e-commerce channel, which produces higher margins. CEO Jane Elfers said that e-commerce sales had reached 50% steady-state penetration, showing the company is as much an e-commerce company as a brick-and-mortar retailer.
Even better, Children's Place should benefit from a number of tailwinds over the rest of the year. It usually makes the bulk of profits in the second half of the year from the back-to-school and holiday seasons, and this year it will benefit from children returning to school in the fall, a need to refill closets after a pause in clothing shopping last year, and the new child tax credit that will give most families checks of $250 to $300 per child starting in July.
Like Carparts.com, Children's Place is only covered by a handful of analysts. They still seem to be underestimating the retailer's recovery, calling for earnings per share this year of just $8.38, which includes the $3.25 in the first quarter.
It may not be accurate to say that IAC (NASDAQ:IAC) is under Wall Street's radar, as the Barry Diller-founded company is well covered among the big banks. However, the stock is often ignored in the wider financial media, and many investors are unaware of its unique business model.
IAC functions as a holding company, owning stakes in businesses that are usually two-way marketplaces or media businesses. It's just spun off YouTube competitor Vimeo (NASDAQ: VMEO), and its biggest holding is now Angi (NASDAQ:ANGI), the home services marketplace. It also has stakes in businesses like DotDash, formerly known as About.com, Mosaic group, a collection of mobile apps, Care.com, a marketplace for finding caregivers, and Turo, a car-sharing marketplace.
As its businesses mature, IAC spins them off and reinvests that cash in smaller, emerging companies. Successful spin-offs prior to Vimeo have included Match Group, Expedia, and TicketMaster, which is now part of Live Nation Entertainment.
Over its history, which began in the mid-90s, IAC's track record has been phenomenal. Early investors would have realized a 27% annual return on their investment, including IAC and the 11 companies it's spun off. Last August, IAC took a 12% share in MGM Resorts International for $1 billion, an investment that has more than doubled, and the company recently installed a new management team at Angi, focusing on the company's new pre-priced product to drive that business's growth.
With the Vimeo spin-off now complete, expect IAC to redeploy its capital and to sharpen its focus on bringing Angi to fruition. Given the company's proven track record as capital allocators, the experience of its management team, and its unique model, investors should expect the stock to continue to outperform the S&P 500.