The S&P 500 has had a rough 2022 so far, down 23% as of this writing. While many high-growth, high-tech stocks have been particularly hard hit along with the market rout and might be selling at bargain prices, there are still some businesses out there that look expensive.
Here are three stocks that, despite all being down year to date, investors will want to seriously consider buying if their prices fall further. Let's take a closer look.
Chipotle Mexican Grill
While many restaurants struggled just to survive as the coronavirus pandemic took hold of the economy, Chipotle Mexican Grill (CMG 2.41%) thrived. The popular Tex-Mex chain boosted its store count by 14.3% from Q1 2020 to Q1 2022. And even as the business goes up against tough comparisons from the year-ago period, revenue and earnings per share rose 16% and 25.6%, respectively, in the first quarter of this year.
Chipotle performed so well throughout the pandemic thanks to its robust digital foundation. The company's popular drive-through option, known as a Chipotlane, increases accessibility and convenience for hungry customers. And the burgeoning rewards program, now with 28 million members, helps Chipotle drive repeat business.
And the company doesn't appear to be slowing down anytime soon. The management team, led by CEO Brian Niccol, believes that North America can one day have more than 7,000 locations. Not only is this more than double the current footprint, but that target is higher than the 6,000 locations previously projected.
With Chipotle shares up 174% over the past five years, the stock currently trades for a price-to-earnings (P/E) ratio of 51. That's far more expensive than other restaurant stocks like McDonald's, Domino's Pizza, and Starbucks. Its shares appear priced for perfection, so investors should wait for a pullback from current levels.
Costco Wholesale
The superb quality of Costco Wholesale's (COST 1.01%) business model has been on full display over the past couple of years, as consumers flocked to one of the company's 832 warehouse clubs to complete their entire shopping trips in one stop. Fiscal 2021 revenue of $196 billion was 17.5% higher than the prior year. And the momentum is still strong as same-store sales in May jumped 15.5% year over year.
Costco's overarching objective is to keep prices for merchandise -- ranging from groceries to electronics -- as low as possible. Because of its enormous scale, the company is able to flex its bargaining power with suppliers to negotiate favorable terms. Items are only marked up 11%, on average, lower than at other large retailers. And thanks to Costco's lucrative membership model, it is able to drive incredible customer loyalty. At the end of fiscal 2022's third quarter, the U.S. and Canada renewal rate was a stellar 92.3%.
Unsurprisingly, the major growth strategy for Costco is to open more warehouses. the business plans to open 10 new warehouses in the fourth quarter with most coming in the U.S. And in China, where Costco only has two locations today, management sees a massive opportunity.
As of this writing, the shares trade at a P/E multiple of 35, significantly more expensive than rivals Walmart and BJ's Wholesale Club. Given the stock's 168% rise over the past five years, the premium valuation isn't shocking. Costco is a wonderful business, and it trades as such. Put this one on your watch list for now.
Lululemon Athletica
Rounding out this list is booming athletic apparel maker Lululemon Athletica (LULU 1.31%). With stores closed during the pandemic restrictions, the company was able to rely on its direct-to-consumer business. In the three months ended May 1, online sales represented 45% of its overall business. This has helped to strengthen the brand, as Lululemon's exceptional 53.9% gross margin demonstrates.
The maker of popular women's yoga pants now has a fast-growing men's business. This segment increased revenue at a compound annual growth rate of 30% over the past three years, outpacing the women's segment's 24% rate. On the new product front, footwear -- which management says is showing incredible interest from consumers -- should also help boost sales.
During Q1 2022, North America generated 83% of the company's total revenue. Therefore, looking ahead, Lululemon has a huge opportunity internationally. Unsurprisingly, China will likely be a major growth driver in the years ahead. In its most recent fiscal quarter, markets outside North America accounted for 62% of Nike's overall sales. If this is any indication of where Lululemon can go, then there is still a long growth runway ahead.
Lululemon has been a great stock to own, rising 426% over the past five years. But despite falling 29% this year, its shares still sell at a P/E of 35, which is pricier than competitors' shares. This company is certainly finding great success in the sports apparel industry, but investors should practice some patience before buying the stock.
