With investing, it is of the utmost importance to keep a long-term perspective -- especially when facing volatile economic conditions.
For example, despite the dramatic drops from some of the most popular stocks in markets, many great companies are much more expensive than they were 10 or even five years ago.
Here are three great examples that look set to restart their stock price appreciation.
Image source: Getty Images.
1. Etsy: Up 600% over the last five years
Down nearly 60% year to date, personalized e-commerce specialist Etsy (ETSY -0.48%) may be one of the most extreme examples of a business that pulled growth forward during the COVID-19 pandemic only to face virtually impossible comparables in the upcoming year.
Thanks to its explosion in popularity in late 2020 and early 2021, Etsy shares initially skyrocketed on budding excitement over its triple-digit percentage growth rates and accelerating profitability.
However, after posting gross merchandise sales (GMS) growth of only 3.5% first the first quarter of 2022 compared to the year-ago period, Etsy's share price has struggled as growth continues to slow.
Further adding to uncertainty around the stock, Etsy announced that it was increasing its sellers' fees from 5% to 6.5%, attracting unwanted media attention. While a raise like this can be tricky to pull off successfully, CEO Josh Silverman stated that less than 1% of sellers left the service after the fee increase -- pointing to minimal impact on the company's weekly sales figures.
With these factors in mind, it is vital to take a step back and look at Etsy's overall growth over the last few years, rather than just home in on slowing sales.
ETSY Revenue (TTM) data by YCharts
Yes, revenue growth has slowed as of the first quarter of 2022, but the business still grew sales by 44% annually over the last five years. As the market loves certainty, I can't help but think that if Etsy had delivered this 44% growth spread out evenly over the last five years -- as opposed to a massive spike in 2020 and 2021 -- the ride for its investors may have been much smoother.
Ultimately, despite this lumpy sales growth and subsequent share price volatility, Etsy's investment proposition as the leader in anti-Amazon commoditized goods looks more robust than ever. Furthermore, thanks to this short-term focus on the business's growth and the broader market's sell-off, Etsy is now trading at a three-year low on a price-to-free-cash-flow basis.
ETSY Price to Free Cash Flow data by YCharts
With 7 million new buyers in Q1 2022, gross merchandise sales (GMS) per active buyer that grew 10% year over year, and a steadily increasing number of purchases from its repeat buyers, Etsy's price today makes it one of my favorite investment options.
2. SolarEdge Technologies: Up 1,200% over the last five years
While SolarEdge Technologies (SEDG -7.51%) and its stock price's fall from grace have been much less dramatic than Etsy's, shares of the market-leading solar business have dropped 30% in the last six months.
However, despite this dip, SolarEdge looks beautifully positioned to thrive in a world that expects to triple its energy consumption by 2050. Furthermore, as of 2019, solar only accounted for 11% of the total energy mix -- a figure estimated to grow to 38% by 2050, making solar the single most significant component of the world's electrical capacity.
Pair these megatrends with the suddenly heightened awareness around many countries' sustainable energy independence plans, and the opportunity in front of SolarEdge is quite clear.
Providing power optimizers and inverters for residential and commercial customers interested in solar solutions, the company grew Q1 2022 sales by 62% year over year. Over the last five years, SolarEdge has delivered annual sales growth of 36% while seeing earnings per share rise.
SEDG Normalized Diluted EPS (TTM) data by YCharts
On top of this promising growth, the company also has ambitions to create a larger-scale utility offering that could act as the springboard for solar becoming the dominant source of energy capacity over the coming decades.
Thanks to the clear trends giving the company a significant tailwind and its impressive pairing of high growth and profitability, the recent sell-off makes SolarEdge an excellent investment to continue adding to over the coming years.
3. Kinsale Capital Group: Up 450% over the last five years
While very few insurers can genuinely be called growth stocks, excess and surplus (E&S) insurer Kinsale Capital Group (KNSL -0.82%) certainly bucks this trend. Sporting a five-year annualized revenue growth rate of 35%, Kinsale has quietly been one of the most steady outperformers over the last decade.
Despite being down roughly 13% year to date, Kinsale's stock is up over 450% over the last five years, thanks to the powerful compounding nature of its operations.
Kinsale has carved itself a unique niche in the smaller, harder-to-assess accounts within the broader property and casualty insurance industry -- making it the only excess and surplus pure-play, publicly traded stock. Thanks to this hyper-focus on its niche, the company owns a best-in-class expense ratio of 23%, highlighting the prowess of its in-house underwriting technology.
Best of all for investors, as a pure-play in the E&S segment, Kinsale should be able to continually whittle away at the 99.2% of the E&S market held by its much larger but less-specialized peers. While Kinsale's 0.8% share of the market may sound minuscule, there was $66 billion in premiums written in 2020 -- a figure expected to grow by high single digits for the intermediate future.
Thanks to this market expansion potential, the company's vast market share expansion potential, and its history of delivering industry-leading results, Kinsale makes for a tremendous buy-and-forget investment.
KNSL PE Ratio data by YCharts
Trading at its lowest price-to-earnings ratio since 2017, now may be a great time to consider the specialized insurer.
