Revolve Group's (RVLV -4.22%) share price has more than doubled so far in 2021, and it could repeat that performance over the next few years. With young people opening their wallets to splurge on new clothes coming out of the pandemic, investors could be underestimating near-term demand trends heading into 2022.

Piper Sandler's semiannual Generation Z survey recently showed that clothing is the top spending priority for the first time since 2014. The survey is based on the responses of 10,000 U.S. teens and gives investors a good barometer on where the next generation is spending more of their time and money, which can point to investment opportunities.

Here's why Revolve is perfectly suited to not only enjoy strong near-term growth, but why it's also built to deliver industry-leading growth for many years.

Two people wearing dressy clothes and laughing.

Image source: Getty Images.

A profitable operating model

Revolve is a top e-commerce store that sells the latest fashions, primarily to millennials and Gen Z customers. Thanks to this compelling market position, the company's earnings results have completely obliterated analysts' expectations over the last year. For example, Revolve's adjusted earnings per share (EPS) came in at $0.42 compared to the $0.21 Wall Street anticipated in the most recent quarter. 

Coming off the second consecutive quarter of accelerating sales growth, management has shifted to "aggressive hiring mode" -- a good sign that Revolve sees more demand on the horizon. CEO Michael Karanikolas mentioned during the Q2 earnings call that the new hires are intended to "support consumer demand and exciting growth opportunities."

What is Revolve's secret? Eighteen years' worth of data. Revolve is not a flash-in-the-pan retailer catering to fickle teenagers. It uses a data-driven approach to source on-trend merchandise, and it can quickly pivot to whatever customers are shopping for.  

During the pandemic, Revolve leaned away from dresses and other party attire that it has long been known for and stocked more sweats and athleisure. This shift is paying off in a big way. 

Even with sales flatlining during the middle of 2020, Revolve still managed to realize full-price sell-through on 77% of its sales, outperforming the rest of the retail industry. This solid execution translated to a relatively stable gross margin and a 113% increase in free cash flow.

It's not easy for most retailers to just flip a switch and change their merchandise assortment, but Revolve's read-and-react technological approach really shone during the pandemic. This performance during a challenging period for retailers sets the stage for more growth.

One exciting growth opportunity

Revolve recently hired celebrity and social influencer Kendall Jenner to be the creative director of its Forward brand, which should further bolster its brand appeal. The Forward segment generated only 16% of the company's total sales in 2020, but it's starting to take off after the launch of a new loyalty program that is fully integrated with the Revolve brand. Forward's sales on a two-year basis through Q2 were up 120%. 

"The amount of Forward customers coming directly from our existing Revolve customer base accelerated almost overnight after we launched the Forward loyalty program, contributing strongly to our Forward segment growth in the second quarter," Karanikolas said during the last earnings call. With Jenner on board, growth at Forward could be a major catalyst to watch.

Revolve is a small grower very capable of delivering multibagger returns over the next decade. It generated trailing-12-month sales of just $699 million, which leaves a lot of room for more growth in the $100 billion-plus online apparel market.