In 2021, it seemed like many people got head-faked by the summer reopening narrative. You can see it in the chart of the U.S. Global Jets ETF (JETS -0.78%), which owns the largest airline stocks in the United States. The stock chart peaked in early spring last year when everyone was excited about the COVID-19 vaccines and the return of normalcy. But with the surge of the delta and omicron variants, the reopening was delayed for many people across the country, and the Jets ETF has sunk 17% over the last 12 months.
However, just because 2021 was a flop for reopening stocks doesn't mean 2022 will not see a resurgence of in-person events and travel. Here are two reopening stocks set to boom if the real reopening happens this summer. Let's see if now could be a smart time to scoop up some shares.
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1. Revolve Group: Online fashion retailer
First up, we have Revolve Group (RVLV -1.72%), an online fashion retailer. You might be thinking, wouldn't an online retailer have benefited from the pandemic? That is true for most e-commerce companies, but Revolve Group's niche is selling going-out clothes to younger women. With many in-person events like parties, weddings, and concerts canceled in 2020 and 2021, the company saw a huge decline in demand because nobody felt the need to buy fancy dresses when they were staying inside all day.
This headwind is now reversing. In the fourth quarter of 2021, revenues from dresses (Revolve's core product) grew 140% year over year. I think this is a great sign that there is pent-up demand from Revolve's core customers to buy new fancy clothes for the 2022 summer season.
Revolve is also heavily utilizing its ambassador program, in which it does revenue-share and marketing deals with popular social-media influencers who promote Revolve products to their followers. It also just signed top fashion model Kendall Jenner as creative director for FWRD, its luxury website that is separate from the flagship Revolve website. The partnership only started in September of last year, but it seems to be going well so far. FWRD revenue grew 83% year over year in Q4 to $39.8 million.
In 2021, Revolve Group generated $891 million in revenue, up 54% from 2020, and $100 million in net income, up 76% from 2020. At a current market cap of $4.2 billion, Revolve stock has a trailing price-to-earnings ratio (P/E) of 42, which is much higher than the S&P 500's average of 26.3. At first glance, this dichotomy might make you think it is time to stay away from Revolve Group stock. But investors need to remember that in 2021 the company was still operating under a headwind with many in-person events canceled or delayed until 2022. If we finally see the end of all the pandemic restrictions in the U.S., Revolve's net income could grow substantially in 2022 and 2023, which could bring its P/E down quickly.
2. Callaway: More than just golf clubs
Many of you know Callaway Golf (MODG -2.35%) as one of the top golf club and ball brands in the world. That business was still cooking during the pandemic because golf was one of the few activities relatively unobstructed from restrictions. It churned out $983 million in 2020 revenue and $1.23 billion in 2021 revenue. So what makes Callaway a reopening stock? One word: Topgolf.
Topgolf is a golf entertainment and technology company. It operates huge driving ranges that focus less on golf training and more on building a social atmosphere where groups can play games and track their shots using Topgolf's Toptracer technology. The venues also serve food and sell golf equipment. Callaway decided to purchase Topgolf in late 2020 and closed on the deal in early 2021.
Last year, the Topgolf segment generated just over $1 billion in sales for Callaway, which would have been higher if it owned Topgolf for the entire 12-month period. And this was with the business losing demand from big groups and events in 2021 when the pandemic was still raging. However, that looks to be reversing at a lot of its locations. In Q4 of 2021, same-venue sales were up 6% compared to 2019, which management said was because of strong walk-in traffic and more social events. This indicates to me that Topgolf is finally getting back to normal and should have packed venues as we roll through 2022.
There are 75 Topgolf locations open around the world, 68 of which are in the U.S. Last year, it opened nine new venues, and in 2022 it plans to open 10 more. Combine this steady clip of new locations with 5% to 6% same-venue sales growth, and Topgolf could grow its top line at a rapid rate over the next few years.
Besides venues, Topgolf licenses its Toptracer technology to other driving ranges and earns subscription and revenue-sharing fees when the systems get used. In 2021, the company installed Toptracer in 7,000 driving bays and plans to install them in 8,000 more in 2022. This is a small portion of Topgolf's business right now. It is unclear how big it can get, but it should have very high margins and could be a nice addition to the consolidated business over time.
As of this writing, Callaway stock has a market cap of $4.6 billion. Subtracting out its $352 million cash pile and adding back $1 billion in long-term debt, it has an enterprise value of approximately $5.2 billion. It is hard to value the business since it has so many different parts and is still absorbing the Topgolf acquisition. But if you think the golf club business can be durable and Topgolf can grow its top line by 10% or more per year for the foreseeable future, then Callaway stock is likely a great buy right now.
