Growth stocks were hit hard in the market sell-off last year, but history shows that growing companies are where you want to invest your money for the long haul. Stocks can decline for various reasons in the short term, but in the long run, stock prices follow companies' growth.
If your holdings need some extra firepower for the next bull market, here's why I would consider buying shares of Figs (FIGS 0.63%) and Coupang (CPNG 1.16%).
Figs
Figs is a direct-to-consumer brand of apparel for healthcare professionals. It designs apparel with the same attention to detail of an athletic apparel brand. For example, Figs' proprietary FIONx fabric includes four-way stretch, anti-odor, anti-wrinkle, and sweat-wicking features -- that should sound very familiar to fans of Lululemon or Nike. Figs has been growing revenue at high rates in recent years, but the stock has been a disappointing performer since its initial public offering (IPO) in 2021.
Most of the stock's 68% decline over the last year can be blamed on an expensive valuation after the IPO, because there hasn't been anything wrong with the company's performance. From 2017 through 2021, annual revenue exploded from $18 million to $420 million. That is an incredible rate of growth in a short period that rivals the trajectory of the best tech stocks. While growth has naturally slowed as the company has gotten larger, Figs still reported a revenue increase of 25% year over year in its most recent quarter.
Figs is clearly demonstrating an ability to weather weak retail sales better than other retail brands right now. A company that sells apparel to nurses and doctors is not going to be impacted by a weak economy as much as a discretionary retail company.
Moreover, Figs' direct-to-consumer sales model allows the company to earn a high gross profit margin of 70%, much higher than the margins of top athletic apparel brands.
Data by YCharts.
The healthcare apparel market should allow Figs to keep growing for a long time. There are about 20 million healthcare professionals in the U.S. alone, and Figs currently has 2.2 million active customers. But Figs is also serving a growing market as the number of healthcare jobs is expected to increase by 16% annually through 2030.
Figs' history of growth and attractive prospects are significantly undervalued by the market. The stock's price-to-sales multiple of 2.9 is a big discount to the valuations of Lululemon and Nike, which trade at over 4 times sales.
Data by YCharts
Coupang
South Korea is the sixth-largest e-commerce market in the world, and it's also one of the fastest growing. Coupang is stealing a page out of Amazon's playbook to build a major competitive advantage serving Korean customers. It has spent years building over 40 million square feet of fulfillment capacity to expand its selection and shorten delivery times, and that's paying off.
Revenue tripled between 2019 and 2021, and the company continued to report high growth in 2022, although at a slower rate. Revenue grew 27% year over year on a currency-neutral basis in the most recent quarter, driven by growth in active customers and spending per customer.
Coupang is delivering these results while also showing improvement on its bottom line. It reported a record profit in the last quarter. The company was also able to reduce its fresh-food inventory losses by 50% with investments in machine learning, which have helped the company better predict customer spending patterns. Investments in automation and robotics to process orders should lead to growing profits over time.
Coupang still has an enormous addressable market to go after. The Korean e-commerce market is expected to grow 10% per year to reach $291 billion by 2025. Coupang is also expanding into food delivery (Coupang Eats), entertainment (Coupang Play), fintech, and international expansion, which could create a lucrative flywheel of profitable services to augment less profitable retail sales.
The stock was richly valued during the pandemic, trading as high as 24 times sales. At a price-to-sales ratio of 1.5 as of this writing, investors are undervaluing South Korea's largest e-commerce player.
