Focusing on stocks that are not constantly in the headlines can uncover hidden gems that the market is significantly undervaluing. The two stocks below are wildly different but have one thing in common: They don't get a lot of attention on Wall Street, despite having great track records of delivering strong growth and returns to shareholders.
Leading website creator Wix.com (WIX 0.11%) and UGG brand owner Deckers Outdoor (DECK 1.23%) are two quality growth stocks to consider buying right now. These two companies already have delivered market-beating returns over the last decade but each still has enormous expansion opportunities ahead.
1. Wix.com
Wix.com was founded in 2006 to make it easier for anyone to build a website. It operates as a software-as-a-service (SaaS) company, so most of its revenue comes from subscriptions. This leads to stable annual revenue streams that can turn a high profit margin.
Wix has grown revenue right along with the emergence of the creator economy and burgeoning e-commerce market. Over the last 10 years, revenue increased from just $44 million to over $1.3 billion last year. This growth is reflected in the stock price, which would have turned a $1,000 investment 10 years ago into well over $18,000 at the stock's previous high in 2021, easily outperforming the broader market.
Data by YCharts
The company hit a slump in 2022, as internet growth reverted to pre-pandemic levels. This slump contributed to the stock's recent sell-off. But management still sees many years of significant expansion ahead, which spells a buying opportunity for patient investors. Over the next 10 years, management expects the business to realize over $15 billion in future bookings. While that implies a lower rate of annual growth than previously, the company's improving profitability is being undervalued by the market right now.
It's typical for SaaS companies to report losses in the early stages of growth, as management learns to optimize costs and invest to expand the business, before improving margins later on. Wix is starting to enter the profitable phase of its journey, where it is seeing increased scale turn into growing free cash flow.
Management aims to convert at least 10% of its revenue in free cash flow this year, as it focuses on lowering costs as a percentage of revenue. This should translate to approximately $150 million of free cash flow. Because Wall Street now favors tech companies showing a clear path to profitability, improving free cash flow is a catalyst for the stock to rebound.
It's a good sign that management started to repurchase shares after the stock's fall last year. It repurchased approximately 5% of the total shares outstanding in the fourth quarter, signaling the stock is undervalued at these levels.
2. Deckers Outdoor
Deckers is proof you don't have to buy the latest hot tech stock to reach your financial goals. The company delivers phenomenal returns to investors driven by the popularity of the UGG and Hoka footwear brands.
A $1,000 investment in the stock 10 years ago would be worth almost $10,000 today -- beating the return of the footwear leader Nike and e-commerce titan Amazon.
Data by YCharts
Deckers is a master at developing and marketing shoe brands. It acquired Hoka in 2012, which is fueling its growth today. Hoka offers footwear with a reputation as being some of the most comfortable on the market, and customers are responding with increased sales.
The company delivered impressive growth last year despite inflation and other consumer spending headwinds. Through the first nine months of the fiscal year ending in December, net sales grew 17% year over year. The Hoka brand was a key growth driver, with sales jumping 90% year over year in the holiday quarter.
Hoka reached the $1 billion milestone on a trailing-12-month basis earlier last year, but management sees much more growth for Hoka over the long term. Deckers is just getting started.
The stock seems to be perennially undervalued. Despite a long record of superior growth, the stock still trades at a forward price-to-earnings ratio of 21, which is a significant discount to Nike's 38 and Amazon's 62. Deckers clearly deserves to trade at a higher valuation.
