We're only about one month into 2023, but a handful of high-profile growth stocks have already delivered impressive returns this year. Better-than-expected fourth-quarter GDP growth suggests the Federal Reserve can execute a soft landing instead of plunging the U.S. economy into a deep recession.
Signs of a soft landing ahead are pushing up e-commerce stocks that were hammered in 2022. In fact, all of these online marketplaces have risen more than 100% from their 52-week lows.
Despite already climbing more than 100% in less than a year, these top growth stocks could have more fuel in the tank. Here's a look under the hood of each to see if they deserve a place in your portfolio.
Shopify
Shopify (SHOP 4.90%) was a market darling during the lockdown phase of the pandemic that collapsed in 2022. Before the pandemic, Shopify was mostly a software business that served direct-to-consumer retailers.
The stock fell hard last year because, during the lockdown-fueled frenzy for e-commerce, the company invested heavily in warehouses and other components of its fulfillment network. The lull in e-commerce activity that followed Shopify's heavy investments led to a loss of $158 million in the third quarter of 2022.
Despite the recent losses, investors can find encouragement in the company's recent performance. In November, the company reported a record-setting Black Friday/Cyber Monday weekend with sales that soared 19% year over year. As a result, the stock has climbed around 112% from its 52-week low.
Etsy
Etsy (ETSY 2.86%) stock soared during the lockdown phase of the pandemic, but a return to normality pushed the stock to a 52-week low last spring. Shares of the online marketplace operator have climbed about 106% from that low point, and they could keep on climbing.
You may know Etsy for its eponymous two-sided marketplace geared toward unique and creative goods. Etsy also owns Reverb, which is the go-to platform musicians use to buy and sell their instruments and recording equipment.
Retail operations generally involve businesses making big bets on the fickle shopping habits of consumers. Etsy's vibrant, two-sided marketplaces don't need to make those bets. As a result, the company continues to boast of strong profit margins. Despite a challenging macroeconomic environment, adjusted earnings during the first nine months of 2022 came in at an impressive 28% of top-line revenue.
With strong margins and unique marketplaces that keep customers and sellers engaged, Etsy has a good chance to keep climbing in 2023 and beyond.
Good stocks to buy now?
A soft landing for the U.S. economy could make 2023 a banner year for Etsy and Shopify, but are they good stocks to buy at recent prices? Right now you can buy Etsy for around 33 times forward-looking earnings expectations. That's a great price to pay for a profitable company with revenue that shot up 432% over the past five years.
ETSY Revenue (TTM) data by YCharts
Shopify's earnings have been pinched so sharply that its forward-looking price-to-earnings ratio appears dangerously high. If you look back, though, you'll notice the stock is trading at just 19.3 times the amount it earned back in 2020.
Shopify is a much larger business now than it was in 2020, and its top line is growing even faster than Etsy's. There are no guarantees that Shopify will earn more in the years ahead than it did in 2020. With a market-leading suite of tools for independent retailers and an ability to provide more comprehensive fulfillment services, growth does seem highly likely. Investors who buy Shopify at recent prices and hold it over the long run have an excellent chance to come out ahead.
