The market is presenting investors with plenty of bargain buys at the moment. If you have the cash on hand to invest right now, it could be an excellent time to build or add to positions in wonderful stocks at a discount.
Provided you have an investment time horizon of at least three to five years, and the risk tolerance to continue investing in the current market, here are two fantastic stocks trading significantly off their all-time highs that you may want to add to your buy list ASAP.
1. Chewy
Chewy (CHWY -2.79%) has built a thriving online business around the fast-growing pet industry. With products and services that range from pet food to pet telehealth to pet insurance plans to generic and specialty medications, its platform is designed to provide a one-stop shopping experience for pet owners around the country.
Plus, with a growing number of products geared toward animals apart from household pets, including horses, chickens, and goats, Chewy is tapped into many diverse sources of current and future growth potential.
Chewy's strength lies not just in its online-only model that taps into the full range of needs animal owners face, while featuring a mix of its own branded products as well third-party labels, but also in its growing automated fulfillment center network. The company currently has more than a dozen fulfillment centers in operation, three of which are automated, and CEO Sumit Singh said in the third-quarter earnings call that the company is planning to open two more over the next 12 to 15 months.
Automated fulfillment centers not only bring the benefit to the consumer of streamlining processing and shipping times, but also cost savings to Chewy's business by lowering operational expenses.
As of the third quarter of 2022, Chewy is processing 30% of all shipping volume through its automated fulfillment centers, up considerably from the 10% it reported in the same quarter of 2021. Singh also pointed out in the third quarter earnings call that the company experienced cost savings of anywhere from 18% to 20% on items shipped from its automated fulfillment centers versus its traditional fulfillment network.
Chewy's net sales jumped 15% year over year in the third quarter to $2.5 billion, while the company pulled in net income of $2.3 million and generated free cash flow of $70 million in the three-month period.
The company has proven its ability to reduce operating costs and streamline profit-making opportunities in a tough operating environment. While some pet owners may pull back on spending, they won't curtail this spending altogether, and the wide variety of products and services that Chewy offers means the company can capitalize on different sources of consumer spending.
For investors who are in it for the long term, Chewy's potential opportunity in the multibillion-dollar addressable market in which it operates, coupled with its solid underlying business, may present a deal that's simply too good to pass up.
2. Etsy
Etsy (ETSY -0.46%) has solidified itself as a uniquely individual presence in the highly competitive e-commerce space with its flagship platform as well as the portfolio of other businesses it's acquired in recent quarters (Reverb, Depop, and Elo7). The platform's focus on vintage goods, unique and handmade items, and specialty products that consumers might be hard-pressed to find elsewhere, provides a key differentiator from other e-commerce platforms in the space.
Amazon's strength lies in its position as one of the world's most popular platforms for small business owners to luxury brands to market and sell goods across virtually any category. Shopify's advantage lies in its model of helping business owners build and launch their own individual online brands, serving as the background purveyor of software, hardware, and services needed to support that goal.
Etsy, on the other hand, functions as a singular online marketplace where sellers can list their own online store of goods and connect with prospective buyers. But its focus on the specialty, vintage, and handmade segment is unique, in terms of both its scale and penetration of this multibillion-dollar subsector of the broad e-commerce market. Management estimates that the Etsy platform alone operates in a total addressable market of $2 trillion, and that to date, the company has penetrated just 2.6% of the online segment of this market.
This not only means that Etsy has tremendous room to grow in the coming years, but the fact that it has few direct competitors that operate in its sector of the e-commerce space at the magnitude at which it does gives it a considerable advantage overall.
While some investors have been disappointed by the company's decelerating growth in recent quarters, when you look beyond year-over-year comparisons, it's clear that Etsy's financials are improving on a multitude of fronts. Its revenue in the third quarter of 2022 was up 200% compared to the same quarter in 2019, while adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) improved by a notable 300%.
For investors who can stomach the ongoing volatility of the market, the growth potential of Etsy's family of businesses, coupled with the strong foundation of its core business Etsy.com, could pose a compelling buying opportunity, particularly in a discounted market environment.
