Lululemon Athletica (LULU -1.26%) and e.l.f. Beauty (ELF -0.54%) both surged as the world came to grips with economic conditions following the emergence of COVID-19. Hostess Brands (TWNK) is proving it still has a place and room to expand in the new normal. It's likely these companies can continue to build momentum into the future, making them smart buy-and-hold options for long-term investors.
Organic growth in the fitness space
Lululemon Athletica markets its product lines, fitness apparel, and related selections directly to gyms and their members, in addition to selling in stores and online. This approach has proven successful, with the company growing its revenue solidly over the past few years and its stock price going from $80 a share five years ago to today's $300 or more.
The organic, world-of-mouth marketing approach continues to enamor fans of the selection, giving it an edge against bigger competitors such as Nike.
Lululemon's expansion centers largely around men's products, which continue to grow as they trail its women's apparel and related offerings.
December's earnings report showed year-over-year growth for men's offerings in the third quarter at more than $97,000, an increase of more than 25%. This type of healthy expansion focus, combined with more than 22% growth in women's lines, indicates that Lululemon still has plenty of room for expansion.
A strong contender emerges from beauty
Sustainability and an eco-friendly focus remain popular marketing angles with Millennials and Generation Z, and as the younger generations gain greater buying power, the brands they prefer continue to outperform.
Banking on its vegan-friendly and cruelty-free cosmetics, e.l.f. Beauty also seems virtually unstoppable in its space. Growing quickly from share prices of around $20 to today's $70 or more in just five years, e.l.f. Beauty shows no signs of stopping.
By embracing new media, including YouTube, TikTok, and related tools, e.l.f. Beauty positions itself strongly in front of the newest generation of spenders. The company also continues to expand its offerings with additional brands, including e.l.f. SKIN and partnerships with influencers including Alicia Keys.
Excellent growth numbers indicate the continued health of e.l.f. Beauty, as net sales increased 49% year over year for the third quarter. The company's holdings also continue to grow; it eliminated $30.3 million in long-term debt in 2022 and raised cash and equivalents on hand to $87 million from $32.9 million the previous year.
The power of the everlasting Twinkie
Hostess Brands continues to command much of the novelty bakery space in the U.S. and worldwide. And while its growth may not seem as phenomenal as the other two companies mentioned here, Hostess survived the stay-at-home orders of the early pandemic and related share price drops to deliver share prices over twice as high, from lows around $10 to current values hovering around $25.
While the signature snack of the baked-goods giant may only seem everlasting, the continued growth of Hostess indicates that it is here to stay. Gross profit increased by more than 10% year over year, with a net revenue increase of more than 14% in the fourth quarter of 2022. The company's greatest growth occurred with its Voortman's brand, showing an increased appetite for sugar-free foods with a 28.2% increase for the quarter. The sugar-free arena is likely the greatest opportunity for expansion, as growth here was approximately 1.5 times greater than for snacks as a whole.
Preparing for the challenges of the new normal
The biggest challenge for any climbing growth stock is maintaining that momentum. While competition in these areas may be fierce, most companies recognize that the biggest material risks can come from within.
Lululemon notes that damage to its brand or defective products could seriously erode profitability and growth. e.l.f. Beauty recognizes that investors must weigh the potential risks of its extensive dealings with overseas manufacturers, primarily in China, and the threat of supply chain production woes influencing its success. Hostess Brands understands that lower-priced alternatives challenge its market share, and price increases work against it with shoppers.
Each of these stocks operates in a highly competitive environment, and any of these risk factors making news might give pause to long-term investors.
Still, growth stocks sit at the very heart of the global trading economy, offering a chance to own part of burgeoning businesses as they emerge and start to make it big in their various markets. While many growth stocks will reach maturity and slow, becoming the dividend providers and blue chip companies of the future, these three seemingly unstoppable companies have each shown exceptional growth with plenty of opportunities for future expansion.
