With Wall Street's setbacks last week, some investors may be confused about how to operate in this market. Growth stocks are tanking, and many companies that were posting excellent performance are seeing their prices dragged down. 

There are many ways to deal with this environment. One is to scout out companies that are demonstrating real growth and profitability, but whose prices are down because of the market dip, and use the opportunity to buy shares of these no-brainer stocks at low prices. 

Revolve Group (RVLV 0.12%) is a fairly new stock brimming with potential and well on its way toward becoming an industry-leading company. Its stock is down 18% year to date, and Wall Street sees a 100% upside. You might want to consider adding shares to your portfolio before they begin their rise.

Person wearing sunglasses carrying luxury handbag and shopping bags.

Image source: Getty Images.

Not your typical tech stock

Revolve is a fashion company, but it's powered by artificial intelligence and machine learning. It's not your typical tech stock, but it would be a mistake to discount it because it's focused on fashion and not computer chips or smartphones.

Revolve uses a sophisticated model that taps into modern social media for its target of millennials and Gen Z consumers. It has a premium focus, which means it sells a lot of items at full price -- 77% of products in 2020. And it's been doing this for 18 years, so it has an enormous pool of data that it uses to operate its platform. 

Customers are noticing. Sales increased 62% year over year in the 2021 third quarter to a record $244 million, an acceleration from the second quarter. Revenue per traffic session increased, as did average sales per active customer. Active customer count itself increased to record levels.

Revolve is very much focused on building its brand, through "innovative marketing" such as presenting at New York Fashion Week and promoting itself through partnerships with influencers. This is leading to higher customer engagement and more full-priced sales. It's a different tack than many other fashion brands, and as customer shopping trends shift, Revolve is assessing them and meeting customers where they are. Due to its reliance on technology, which allows it to see what's trending and quickly offer products that fit, it can change its product line to seize any moment. 

Can Revolve keep it up?

There are compelling reasons to envision this company exploding over the next few years. CEO Mike Karanikolas said: "We believe we have just scratched the surface on what we view as a massive long-term opportunity to build a curated luxury platform for the next-generation consumer."

It sees a global total addressable market (TAM) in the beauty, fashion, accessories, and footwear sector of $3.4 trillion in 2021, growing at a compound annual growth rate (CAGR) of 5.3%. Its main market of the U.S. has a TAM of $622 billion for 2021, growing at a CAGR of 3.3%. (These numbers were given prepandemic, and may be slowing while the economy recovers.) Revolve is a small company with a tiny fraction of that market, and while it's growing, many other apparel companies have been feeling the heat of shifting fashion trends accelerated by the pandemic.

Net income came in at $16.7 million in the third quarter, slightly down year over year due to marketing investments. Those should pay off for the company, and investors can feel confident in this company's prospects to stay viable and grow from this point.

Sure, there are risks, as there are with every investment. The macroeconomic environment is still shaky, and supply chains are still pressured, which could affect the company's operations as well as the stock's ability to grow. But they look minor when seeing the big picture.

Revolve stock trades at 38 times trailing-12-month earnings, a fairly reasonable valuation, especially for a stock that offers so much potential for growth. Wall Street's median consensus for Revolve's price target is $84, or nearly double the current price, with a high of $100. Now is a great time to buy shares and watch them grow.