There's no doubt about it -- growth stocks are back. After a miserable 2022, the Vanguard Growth ETF is up 16% year to date, while the Vanguard Value ETF is unchanged.
Let's look at three under-the-radar growth stocks I think present great opportunity for the long-term investor: Lululemon Athletica (NASDAQ: LULU), e.l.f. Beauty (NYSE: ELF), and Airbnb (NASDAQ: ABNB).
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Lululemon
Is Lululemon an under-the-radar growth stock? I submit that it is. Sure, Lululemon is basically a household name. Nevertheless, the market seems to be of two minds about this growth stock powerhouse -- sometimes sending the shares sharply higher and sometimes sharply lower over the past year. In fact, over the last 12 months, Lululemon shares are almost unchanged in value.
There are, however, reasons for optimism. Lululemon CEO Calvin McDonald and his management team continue to deliver results. Quarterly revenue growth (for the three months ended Jan. 29) stands at 30% -- right around its three-year average. Meanwhile, operating margins jumped to 26%. That's despite analyst concerns that growing inventory would force Lululemon to slash prices.
Granted, there are concerns, too. The company's price-to-earnings (P/E) ratio is 55 -- making Lululemon's shares as expensive as many of its clothes. Nevertheless, for investors willing to pay up for growth, Lululemon is a stock worth considering.
e.l.f. Beauty
If you're looking for a growth stock that truly shows promise, e.l.f. Beauty is a name to remember (the e.l.f. stands for eye, lip, and face). This up and comer has a grasp of the zeitgeist, producing vegan and cruelty-free (no animal testing) cosmetics. This has gained it a passionate following among the Gen Z crowd. The company sells its products across three channels:
- National Retailers: large food, drug, and specialty chains -- most notably, Target.
- E-commerce: direct to consumers through its website and mobile app.
- International: The company has footholds in the U.K., Australia, Germany, and Canada.
What should really excite investors is the company's staggering growth. Sales at e.l.f. have ballooned from $288 million to $497 million in three years. What's more, its growth is accelerating. Quarterly revenue for the three months ended Dec. 31, 2022, surged 49% from the previous year. That's up from 26% revenue growth a year earlier.
Like so many growth stocks, this one asks investors to pay up for skyrocketing revenue. The shares trade at a lofty P/E ratio of 100. So while the stock is not for everyone, growth investors with a high-risk tolerance might want to add some shares of e.l.f. Beauty if they're in need of a portfolio makeover.
Airbnb
Like my first two under-the-radar growth stock picks, Airbnb boasts impressive double-digit revenue growth. In its most recent quarter (ended Dec. 30, 2022), the company posted year-over-year revenue growth of 24%.
However, the market can't seem to make up its mind about Airbnb. While the shares are up 32% year to date, they're still down 30% from a year ago.
Yet it's clear that Airbnb has several bullish factors on its side. The company continues to grow its network of hosts -- it now has over 4 million of them supporting some 6.6 million active listings.
In addition, total nights and experiences booked hit 394 million in 2022 -- an all-time record. Similarly, Gross Booking Value (GBV), a closely watched metric in the leisure industry, hit $63 billion -- up 66% from 2019 (the last full pre-pandemic year).
Airbnb's P/E ratio of 41 might scare off some investors. However, unlike Lululemon and e.l.f. Beauty, Airbnb's P/E ratio has been decreasing over the past year. Indeed, the company's soaring profits and rising free cash flow offer two more bullish indicators for this under-the-radar growth stock.
