At the end of October, I wrote about several top stocks trading for under $20 a share, and I can no longer include some of these on this type of a list -- not because they are no longer great stocks, but because after strong performances, they are no longer under $20 a share.
Stocks like Build-A-Bear Workshop (BBW) and Xponential Fitness (XPOF 39.38%) were two of my recent top stocks under $20, and I'm happy to say that both have graduated beyond this level after gains of 43% and 25%, respectively, over the past month. With this in mind, what top stocks under $20 a share now could join them in the future?
Bowlero (BOWL 5.94%) is the last holdover from my previous list still trading below $20, but I don't think it will stay in this class for long. Shares of the bowling alley operator have drastically outperformed the broader market this year, with a gain of 42% versus respective declines of 17.5% and 30.2% for the S&P 500 and Nasdaq Composite.
Bowlero is the largest operator of bowling entertainment centers worldwide, and it is home to brands like its namesake Bowlero, Bowlmor Lanes, AMF, and the Professional Bowlers Association. Bowlero is growing revenue and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) at impressive rates.
Last quarter, it grew revenue by 27% year over year and adjusted EBITDA by 11%. These numbers aren't just the result of lapping weak results from the COVID-19 pandemic period -- the company reports that its revenue for the quarter was 55% higher than pre-pandemic, while its adjusted EBITDA is 162% higher than it was pre-pandemic.
Bowlero is growing rapidly by acquiring bowling alleys in this fragmented industry. It made three acquisitions during the past quarter and has purchase agreements for three additional centers in place, as well as another five centers slated to be built.
However, the company isn't growing its footprint at the expense of its current operations -- same-store sales increased by 19.9% year over year and 37.6% versus pre-pandemic numbers. It's increasing same-store sales by differentiating itself as a premium entertainment experience and by adding gaming and concession sales.
Consensus estimates call for Bowlero to become profitable next year, and it trades at 18 times forward earnings. As it continues to expand its footprint and increase its same-store sales, the stock should eventually climb well beyond $20.
Like Bowlero, Figs (FIGS -0.77%) is another fast-growing, recently public company. Unlike Bowlero, the maker of stylish apparel for healthcare workers has not performed well in 2022. The stock is down 71% year to date. But this is still a good company, and one that could eventually return to above $20 a share -- it's profitable, it is growing revenue at a rapid clip, and it has a passionate customer base.
The stock has fallen due to a mix of short-term issues, including inflation reducing its customers' spending power and a rise in inventory last quarter, as well as some supply chain challenges. But the company made the decision to maintain its pricing in spite of inflation, and over the long term, this seems like a wise way to increase customer loyalty with a customer base that already gives Figs a net promoter score of over 80. Many of these customers are repeat buyers who account for 70% of Figs' revenue, so they are clearly big fans of the brand.
The underlying business is performing well. During the most recent quarter, Figs grew revenue 25.2% year over year, and the company's active customer account grew by 23.6% to 2.2 million active customers. Figs boasts gross margins of 71%, indicating that customers view its clothing as a premium product.
I believe Figs will be rewarded over time for doing right by its loyal customers during a challenging time, and as the company continues to grow, the market should come back around to the Figs story.
3. Petco Health and Wellness
Like Figs, Petco Health and Wellness (WOOF) is another recently public highflier that used to trade above $20 a share before falling 53% from its 52-week high.
Petco reported double-digit revenue growth each quarter as a publicly traded company before reporting revenue growth of just 4% in August. The company also lowered full-year guidance, saying that people were buying fewer pets and discretionary items. But the company is still growing, albeit at a slower pace, and should benefit for years from the fact that after the pandemic there are now more pets in the United States than ever before.
There is still a lot to like here. Petco is profitable, and it trades at just 14 times forward earnings. It recently reported its 16th straight quarter of comparable sales growth and 15th straight quarter of active customer growth.
The company has a defensive business model -- people need to buy food for their pets regardless of the economic environment. Petco is taking advantage of this defensiveness to build other services around this core offering to make itself a stickier, higher-margin business, by offering services like grooming and veterinary services.
This is a great way for Petco to become a bigger part of its customers' lives and to offer them something that online competitors like Amazon and Chewy cannot. Revenue for services grew 14% year over year and is up 38% compared with two years ago, thanks to momentum in grooming and veterinary services. As this service-based element of Petco continues to grow and receive more credit from the market, it seems likely that it will again exceed the $20 level.
These stocks are under $20 for a variety of reasons: Bowlero is working its way up toward $20, while Figs and Petco have fallen from loftier levels. But if these companies continue to execute on their strategies, they should eventually exceed $20 over time.