3 Hot Stocks That Could Live Up to Their Lofty Valuations

Green Thumb Industries (GTBIF -1.37%), SunPower (SPWR -2.17%) and Genmab (GMAB -0.70%) are all up this month, and are trading for at least 35 times earnings. Instead of being overpriced, though, there are solid reasons investors see potential in these hot stocks.

All three have debt-to-equity ratios below 0.90 and double-digit year-over-year revenue growth in their most recent quarters, allowing them to benefit from the expected growth in their relative industries.

Why Green Thumb International is worth its price

Green Thumb Industries is that rare cannabis retailer that is turning a profit despite industry headwinds such as inflation and cannabis oversupply. The company's shares are up 4% in the past month, and the stock has a price-to-earnings ratio (P/E) of 41. The reason Green Thumb stock could still go higher is it is well placed to benefit from the growth in cannabis sales in the coming years.

Not every cannabis company will be around a decade from now, and the survivors are the ones showing they can increase sales and stay profitable at the same time -- and Green Thumb is showing that.

In the third quarter the company reported revenue of $261 million, up 12% year over year and 3% over the second quarter. Through nine months, the company had revenue of $758 million, up 17% over the same period last year. It reported $10 million in net income, its 10th consecutive quarter of profit.

The company has 77 retail locations and had operations across 15 U.S. states, and said it expects to surpass $1 billion in annual revenue for the first time this year, meaning it has increased revenue by 1,328% since 2016. It already has a presence in four states that have approved adult-use sales but haven't yet opened up officially to retailers: Connecticut, New York, Virginia, and Maryland. All four states are considered to be highly lucrative, so Green Thumb's revenue will likely get a bump in the near future.

The company also made a big splash when it announced it was working with Circle K convenience stores in Florida to open up Green Thumb's Rise Express dispensaries on property adjacent to Circle K stores. Though the initial effort is modest -- 10 test dispensaries -- the idea has significant potential, because Circle K has 600 stores in the state.

Why SunPower is worth its price

SunPower's shares are up almost 27% in the past month, and it has a P/E of 44, reflecting investors' optimism about green energy companies. 

The company specializes in selling and servicing home solar-power systems. It should continue to benefit from an increased focus on renewable energy, and specifically the Inflation Reduction Act. The legislation, which was passed in August, provides tax credits that promote home solar power use.

It already seems to be having an impact. In the first quarter since the act's passage, SunPower reported revenue of $475.7 million, up 67% year over year. Through nine months, the company said it had revenue of $1.24 billion, up 58% over the same period last year. SunPower ended the quarter with 23,000 new customers, a company record, and a rise of 63% over the same period last year. The company also reported third-quarter net income of $139 million compared to a loss of $72.7 million.

Why GenMab is worth its price

Genmab is a biotech company that focuses on novel antibodies to fight cancer and other diseases. The company's shares are up more than 14% over the past month, and its P/E is 37. It has been very successful in partnering with larger pharmaceutical companies. 

Through nine months, the company reported revenue of $1.36 million, up 60% year over year, led by increased royalty sales from multiple myeloma therapy Darzalex, the multiple sclerosis treatment Kesimpta, and thyroid eye disease therapy Tepezza -- under collaboration agreements, respectively, with Johnson & Johnson subsidiary Janssen, Novartis, and Roche.

Darzalex, and its subcutaneous version Darzalex Faspro, was the biggest driver. In the third quarter alone, the drug had sales of $2.05 billion, up 30% year over year. 

The company has another potential blockbuster in Epcoritamab. Genmab and collaboration partner AbbVie submitted their Biologics License Application submission to the Food and Drug Administration (FDA) to treat relapsed and refractory large B-cell lymphoma (LBCL) on Nov. 21. The drug has a Prescription Drug User Fee Act (PDUFA) target date of May 21, 2023. The LBCL population is small, affecting about five in 100,000 people, according to the National Cancer Institute, but an approval would open the door for Epcoritamab to add other B-cell malignancies to its indications.

Genmab also posted net income through nine months of $377 million, up 281% over the same period last year.