Stock prices are often discussed in terms of valuation instead of actual numbers. A stock may cost $3,000 and be considered "cheap," whereas another stock may cost $10 and be called "expensive." If you're new to investing, it might sound funny, and it takes time to digest what that means.
Regardless of valuation, dollars are still absolute. If you have $100 or $200 to spend on investing, you have a choice of finding stocks to buy within your budget or buying with fractional shares. There are great stocks to buy that are cheap in both relative and absolute terms.
Here are two current examples to consider. Revolve Group (RVLV 0.37%) and Dutch Bros (BROS -0.47%) are high-growth stocks that trade for less than $100 and sport cheap valuations to boot.
1. Revolve Group
Revolve Group is a fashion e-commerce company that is tuned into how consumers shop today. It's well-known for its reliance on social media influencers and celebrities to tout its wares, which lets it reach its core customers where they are and in a platform that speaks their language.
Revolve thinks of itself as a shopping "experience" where shoppers go to get inspiration in addition to products. It offers more than 70,000 products that are curated from the company's artificial-intelligence derived algorithms, and it drops about 1,300 new styles weekly.
Its reliance on technology impacts all of its operations, from AI and the digital shopping experience to internal functions such as inventory management, allowing it run efficiently and leading to higher profitability. In fact, it boasted an 87% full-priced sales rate in 2022. It has also been successful with a private label business, which is typically seen as a downgrade in branding. But Revolve has been able to pull it off due to its customer loyalty and premium branding.
Sales grew a brisk 58% in the 2022 first quarter, and even more -- 71% -- for its luxury sister-site FWRD, which targets a high-fashion crowd. Gross margin improved over last year, and free cash flow increased more than 60%. These are impressive numbers for a retailer at a time when similar companies are experiencing a lot of pressure.
This may have filtered down to Revolve in the second quarter as well, and we'll find out on Aug. 3. But either way, the long-term picture looks compelling. Add to this that shares are incredibly cheap right now, trading at 21 times trailing 12-month earnings as the price has tumbled more than 50% this year. That might be due to the general atmosphere in retail, and the second-quarter report will be telling.
2. Dutch Bros
Dutch Bros has only been public since September, and shares are trading about 6% higher than the opening-day price. But they're down 24% this year despite impressive performance.
The coffee chain has a niche in its homey, customer-oriented branches, where it serves branded coffee drinks with a focus on cold beverages. The fun atmosphere, where there are outdoor dining areas and music playing, differentiates the chain from other coffee chains. The model has been honed and successful, and replicated in its 572 stores in 12 states, mostly in the western U.S. states. Dutch Bros sees a path toward 4,000 stores over the next 10 to 15 years.
The company operates a franchise model, although more than half of its stores are company-run, and company-owned stores are growing at a faster rate. 2022 first-quarter revenue increased 54% although CEO Joth Ricci said that the 107 company-owned stores accounted for much of that growth. Same-store sales improved 6% year over year.
Dutch Bros is feeling the pressure of inflation, both from increased costs and more careful spending by customers. The company's net loss widened in the first quarter from $4 million last year to $16 million this year. It maintained its full-year outlook of $700 million to $715 million in revenue but revised its guidance for adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) from at least $115 million down to $90 million. It's also expecting same-store sales to decline in the second quarter.
It's not surprising that Dutch Bros stock fell after the first-quarter report. At this price, shares trade at a moderate price-to-sales ratio of 3.7. But the company is aggressively expanding despite the downturn, and its generally efficient cost management gives it stability as costs rise. These factors put it in a great position to weather the current economic conditions and grow. Dutch Bros has a winning model and should reward shareholders many times over in the next decade.
