The market has always acted in cycles; a gradual march higher, followed by the occasional sharp decline. It's likely that our current market misery eventually ends with a new rally, just like many times before.
Growth stocks tend to do great in up markets and can take a whooping from Wall Street in down markets. But the quality companies will recover and go on to new highs. Here are three growth stocks that are poised to soar to new heights when the new bull market eventually begins.
1. A tech giant on sale
Amazon (AMZN 3.43%) is most known for its e-commerce business, which accounted for 41% of the U.S. market's online sales in 2021. Amazon has become a conglomerate with flourishing segments like Amazon Web Services (AWS), media-streaming, and advertising.
You can see in the chart below how the stock's price-to-sales (P/S) ratio has fallen to its lowest level since 2016, a multi-year low. The e-commerce business, which is price competitive and requires constant investments into fulfillment and supply chain, was 84% of total revenue back then. That fell to 73% in 2021, a result of these newer segments contributing more to the company.
It could be fair to reward Amazon with a higher valuation if this trend continues. AWS was responsible for all of Amazon's Q1 2022 operating profits, despite accounting for just 15% of revenue.
AMZN PS Ratio data by YCharts
Amazon is currently working through higher costs in its e-commerce business, and market sentiment is in the gutter. But Wall Street could come to appreciate Amazon's emerging ad business and continued strength from AWS as catalysts to lift the stock during the next bull market.
2. The second-leading e-commerce company
Shopify (SHOP 1.11%) has played an essential role in the long-term growth of e-commerce. Its software-as-a-service (SaaS) enables any person or business to set up and run an online store quickly. Amazon might be the Goliath of e-commerce, but Shopify's army of Davids, including roughly 1.75 million merchants, adds up to about 10% market share of online sales in the U.S.
Companies evolve over their lifespan, and Shopify is no exception. Management is currently focusing on building up the fulfillment part of its ecosystem to provide two-day shipping for 90% of the U.S. population and a simple system for product returns. Shopify bought logistics company Deliverr for $2.1 billion and is heavily investing in developing its nationwide network.
Shopify must successfully build its fulfillment network, and the current uncertainty has turned off investors in a volatile market. You can see below that the stock's P/S ratio has fallen to its lowest level since the company went public.
SHOP PS Ratio data by YCharts
It's a risk whenever a company must do something new, but the stock's nearly 80% decline from highs is a significant discount that arguably compensates for the added uncertainty. Mr. Market tends to be an extremist, often overreacting to the ups and downsides. The next bull market could spark great investment returns if Shopify succeeds in its fulfillment plans.
3. This beverage company can energize your portfolio
Celsius Holdings (CELH 2.12%) is an energy drink company whose products target the active consumer with natural ingredients, and it claims its formula helps boost metabolism when used with exercise. Anything in beverages is fiercely competitive, but finding a niche to exploit can be one way to overcome that. As of this writing, the top-selling energy drink on Amazon is a Celsius product, so sales momentum appears healthy.
Distribution is key to growing sales of any physical product. Celsius has built its market footprint up to more than 140,000 points of sale through supermarkets, convenience stores, gyms, drug stores, and even the military. The company's revenue has flourished as a result, growing an average of 74% over the past five years.
You can see below how the stock's P/S ratio had come down from its high when the market peaked in late 2021, but it remains well above pre-pandemic levels. The company burned cash over the past year with a free cash flow of negative $77 million, resulting from investments to grow the company and higher input costs due to inflation.
CELH PS Ratio data by YCharts
Celsius has roughly $25 million in cash on its balance sheet, so management might seek to raise money soon. However, there's currently no debt on the books, so the company is on stable financial ground. Assuming that inflation recedes at some point, investors could see Celsius' bottom line improve and the stock bounce during the next bull market.
