Of the four stocks featured in this article, only Kinsale Capital (KNSL 1.12%) beat the market in 2022. Yet the impressive sales growth of all four companies highlights their uniquely unstoppable nature.
Furthermore, as all four stocks' share prices struggle in this uncertain economy, these growth rates now look discounted. Trading at these more shareholder-friendly valuations, there are some clear reasons why each growth story offers multibagger potential. Let's explore.
1. SoFi Technologies
Initially drawing attention for its student loan refinancing business, SoFi Technologies (SOFI 1.12%) offers investors a three-pronged growth attack through its trio of operating segments.
First, in its Lending unit, SoFi has expanded to offer not only student loans but also personal and home loans. This diversification proved crucial as the moratorium on student loan payments was recently extended, leading to a continued decline in originations. Similarly, with interest rates rising, home loan refinancing cooled for SoFi, leading to a 73% drop in originations year over year.
However, its personal loan operations grew originations by 71% year over year in the third quarter. That allowed the entire lending unit to record 38% revenue growth, despite the challenging environment.
Meanwhile, SoFi's technology platform segment grew its total accounts by 40% year over year in Q3, and its financial services unit saw a 69% increase in banking products added over the same time. These two younger business lines pair nicely with SoFi's lending segment and create a well-balanced financial ecosystem built around the company's 4.7 million members.
Between SoFi's low price-to-sales ratio of 2.8, its three-year sales growth rate of 56%, and management's expectation for generally accepted accounting principles (GAAP) profitability by year-end 2023, the company offers investors undeniable multibagger potential.
SOFI Profit Margin (Quarterly) data by YCharts. PS ratio = price-to-sales ratio.
2. Progyny
Down 38% in 2022, shares of fertility benefits management company Progyny (PGNY -1.24%) have sold off in an unfriendly market for high-growth stocks. Trading as high as 16 times sales in 2021, Progyny's share price couldn't keep up with its premium valuation.
PGNY PS Ratio data by YCharts. PS ratio = price-to-sales ratio.
However, after posting strong revenue growth in 2022, capped by a 68% year-over-year increase in the third quarter, the company's now discounted price-to-sales ratio of 4.4 looks enticing. Leading this growth charge is the fertility industry's annualized growth rate of 9% over the last 10 years and a worrying decline in fertility rates among people in their 20s.
While offering fertility benefits to employees may sound like a common sense option, only 50% of employers currently provide a fertility benefit. Although adding these benefits may cost more upfront, Progyny's services pay dividends for its enterprise customers later.
With higher pregnancy success rates, safer pregnancies, and healthier babies than the national averages for other fertility services, Progyny's offerings are truly market-leading. Saving its customers money through fewer failed treatments, lower prescription drug waste, less neonatal intensive care unit spending, and improved productivity from happier workers, the company's client count ballooned from five in 2016 to 265 today.
Currently, only 3% of the United States's largest 8,000 businesses offer Progyny's benefits, leaving a massive growth runway ahead of this unstoppable-looking stock.
3. Kinsale Capital
Operating as the only pure-play excess and surplus insurance stock, shares of Kinsale Capital have continued their incredible five-year run despite a brutal 2022 stock market.
Up six-fold in the last five years, Kinsale's technology platform and focus on data and analytics create a continually improving feedback loop for its underwriting and claims teams to learn from. With proprietary technology and in-house underwriting, the company owns a best-in-class expense ratio of 23%.
This expense control and a better-than-most loss ratio of 60% give Kinsale a combined ratio of only 83% -- well below its peers' average of 97%. Combined ratios are paramount for insurers and are calculated by adding the expense and loss ratios together. Any figure under 100% shows profitable insurance operations -- the lower the figure, the better.
This incredible combined ratio allows Kinsale to register an impressive 21% return on equity as of the third quarter, despite facing challenges from Hurricane Ian-related claims.
KNSL Return on Equity data by YCharts.
After removing Kinsale's $1.8 billion investment portfolio from its $6.4 billion market capitalization, the company trades at roughly 30 times earnings. Posting a three-year annualized earnings-per-share (EPS) growth rate of 39%, Kinsale may offer multibagger potential at a reasonable valuation.
4. Lovesac
Founder-led and debt-free, innovative furniture manufacturer Lovesac (LOVE 2.93%) and its environmentally friendly operations bring a feel-good opportunity to investors. Through its modular "Sactionals" (which account for 88% of sales), Lovesac's furniture is changeable, maintainable, moveable, rearrangeable, upgradeable, and largely waste-free.
In fact, each Sactional pit layout uses around 966 repurposed plastic bottles for its upholstery, with Lovesac reusing 159 million bottles in its products throughout its lifetime. Buoyed partially by this conscious capitalism upside, the stock's share price tripled after its initial public offering in 2019.
However, Lovesac's stock price has dropped over 70% year to date, with the consumer discretionary market tightening its spending and most growth stocks selling off heavily in general. Further highlighting this tough market, the furniture industry experienced a mid-teens decline in sales during the third quarter compared to last year.
While its 16% sales increase in Q3 is far from its 44% annualized growth rate over the last three years, this expansion is impressive, considering the furniture market's challenges. Despite this surprisingly resilient growth, Lovesac's EPS turned negative in Q3 as the company increased spending to prepare for the holiday season, sending the company near all-time lows valuation-wise.
LOVE PE Ratio data by YCharts. PE ratio = price-to-earnings ratio. PS ratio = price-to-sales ratio.
Now trading at just 10 times earnings and 0.5 times sales, Lovesac is being priced for death, despite having no debt and an impressive (albeit short) history of sales growth. This cheap valuation looks incredibly tempting, considering Lovesac's remaining growth runway, as it has only a 1.2% share of the couch, seating, and chair market.
Should these valuation multiples expand over time -- if Lovesac can return to its higher growth rates -- it could quickly become a multibagger from today's prices.
