If you're looking for high-growth stocks that have been beaten down and could take off in the next bull market, you've come to the right place.
While no one knows if the stock market has hit bottom yet, it certainly feels that way. Some stocks are trading at tempting valuations. That's probably why, after falling more than 33% last year, the Nasdaq Composite is already up 13% in 2023.
A team of Motley Fool contributors recently sifted through the market's rubble to find three promising growth stocks that are due to rebound. Here's why they like Wayfair (W 1.89%), Global-e Online (GLBE 0.69%), and Floor and Décor Holdings (FND 1.67%).
NYSE: W
Key Data Points
An e-commerce star ready for a comeback
Jeremy Bowman (Wayfair): Online home goods retailer Wayfair saw its stock surge during the early stages of the pandemic, as it benefited from strong demand for home goods and from e-commerce tailwinds.
However, those tailwinds soon reversed into headwinds as the economy started reopening and consumers returned to pre-pandemic shopping habits, spending money in stores and on services like travel and restaurants that were off-limits during the health crisis.
That's been a challenge for Wayfair as its revenue has now declined for six straight quarters, and the stock has plunged, down roughly 90% from peak to trough at one point.
However, the stock is showing signs of life, and shares have doubled year to date in 2023, surging after the company announced a second round of layoffs in January.
Management said the company would cut its workforce by 10%, laying off 1,750 people, which included 1,200 corporate employees, or 18% of its corporate workforce, as part of a plan to cut $1.4 billion in annual costs.
The company also said revenue trends improved from November to December, and because of the top-line improvement and additional cost cutting, management now expects to reach its break-even adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) target earlier in 2023 than it had originally forecast.
Even after the stock has gained 102% in just one month, it's still trading significantly below its pre-pandemic levels, indicating considerable upside potential. Despite the revenue declines, the business is still larger than it was in 2019, and if the company can demonstrate its ability to deliver profitable growth, it's likely to be rewarded by investors.
A rising tide from a bull market would also give Wayfair a clear tailwind, as it would benefit from a recovery in home sales due to the accompanying demand for home goods. Whether that happens in 2023 remains to be seen, but it will happen eventually.
NYSE: FND
Key Data Points
This retailer has multibagger return potential
John Ballard (Floor & Décor Holdings): Finding successful businesses while they are still small can be a rewarding investment strategy. Floor and Décor is a high-growth, specialty retailer of hard-surface flooring that is benefiting from powerful tailwinds in the housing market and could deliver explosive returns for investors over the next decade.
Growth has been exceptional. From 2017 through 2021, sales grew at an annualized rate of 25%, while adjusted earnings climbed even faster at 37%. In the most recent quarter, that strong momentum continued, with sales up 25% year over year. One driver of this growth is homeowners' growing preference for hard flooring instead of carpets.
There is also a big opportunity in more store openings. The company's latest update puts the store footprint at 191 locations in 36 states, but management sees room to roughly triple that store base over the next 10 years.
Image source: Floor and Decor Holdings 2022 investor presentation.
Customers come to Floor & Décor for competitive prices, a vast selection, and a spacious store layout. The average store is 78,000 square feet, which is above average for the typical flooring store. This allows the company to offer one-stop shopping services for professional contractors, do-it-yourself homeowners, and commercial businesses.
The recent sell-off is an ideal opportunity to buy shares of this proven retail concept with a long runway of profitable growth ahead, which has even won the stock a position in the portfolio of Warren Buffett's Berkshire Hathaway.
NASDAQ: GLBE
Key Data Points
An expensive stock that deserves its premium
Jennifer Saibil (Global-e): After losing 67% of its value in 2022, relative newcomer Global-e is now up 51% so far this year. There's a lot be excited about with this e-commerce company, and now is the time to climb on for the ride.
Global-e's business model is fairly simple. It provides cross-border e-commerce solutions for retailers, such as checkout in more than 100 currencies and instant shipping and customs calculations. Its platform integrates with users' e-commerce sites, and voilà, they now have access to millions of new global customers.
As proof of its popularity, Global-e has been delivering incredible growth since going public in 2021.
| Metric | Q3 2022 | Q2 2022 | Q1 2022 | Q4 2021 | Q3 2021 | Q2 2021 |
|---|---|---|---|---|---|---|
| Sales growth (year over year) | 79% | 52% | 65% | 80% | 77% | 92% |
Data source: Global-e quarterly reports.
Profitability is a different story. Losses have been piling up as the company scales, and it also amortizes warrants related to its agreement with Shopify as an expense. This is something to keep an eye on, but Global-e is a young company with soaring growth prospects, and losses are typical at this point.
Data by YCharts.
Speaking of Shopify, it's one of Global-e's major clients. Its customers also include iconic brands such as Brooks Brothers and Ralph Lauren, and through its recent acquisition of Borderfree, names like Neiman Marcus and Under Armour joined its platform. It consistently adds new clients while also expanding partnerships.
Global-e is a classic growth stock with a heavy tech focus and widening losses. If investors have learned anything from 2022's market performance, it's that overvalued stocks are likely to eventually fall. With a price-to-sales ratio of 14, Global-e trades at a substantial premium to the broad market, and it could be called expensive at its current price. However, the potential here is enormous, and this is a stock that can prove itself worthy of that premium.
