Choosing tomorrow's stock market winners isn't easy. But we do have some elements that can help us identify stocks with great potential. For instance, a company with brand strength and a plan to spur a new phase of growth. That describes Disney (DIS -0.14%) today. Another key element is progress when it comes to earnings. Chewy (CHWY -1.12%) fits the bill here.
Disney and Chewy have dropped 23% and 14%, respectively, over the past year. That makes them look pretty cheap considering growth prospects. And that means right now is a great time to get in on these stories -- before the stock prices take off. Let's take a closer look at each.
1. Disney
Some investors turned away from Disney shares last year as costs mounted at the entertainment giant. The company added subscribers to its streaming services -- but the unit's operating loss widened. So, Disney brought back longtime chief executive officer Bob Iger to pave a new path to growth.
Iger is putting the focus on creativity, and he's reorganizing departments and cutting jobs. He's aiming for $5.5 billion in cost savings. Iger has two years to complete his task and then hand the reins over to a new CEO. There's reason to be confident. Iger led Disney through successful moves like the launch of animated film Frozen and the acquisitions of Pixar and Marvel. Disney's share price also climbed during Iger's previous tenure.
It's also important to remember Disney's biggest revenue driver still is posting solid results. I'm talking about the parks, experiences, and products unit. It reported double-digit increases in revenue and operating income in the most recent quarter. And trends here are looking positive. The company said Disney World and Disneyland attendance is higher today than it was a year ago. The unit's domestic operating margins also improved in the quarter -- even considering headwinds like higher inflation.
Disney shares today are trading for 24 times forward earnings estimates -- down from more than 32 late last year. If Iger reaches his goals, the price could soar from here.
2. Chewy
Chewy is an online paradise for animal lovers. You can shop there for food, treats, and toys for your pet. And you can go to Chewy for healthcare needs such as online vet visits and pet insurance. The company serves the U.S. market but recently announced plans to expand internationally.
All of this has led to earnings growth for the pet care giant. Chewy announced record profitability, revenue, and free cash flow in its most recent earnings report. The company reported its first ever full year of profit, at more than $49 million in the fiscal year that ended in January. Gross margin reached 28%. And free cash flow topped $119 million.
Chewy has come a long way in just four years. Over that period, revenue has increased to $10 billion from $3.5 billion. And gross margin has climbed from 20%.
But there's a lot more to come for Chewy. First, the company is working on ways to continue improving margins and satisfy customers. That's by revamping the supply chain. Chewy started investing in fulfillment center automation a few years ago, a great way to improve productivity. Second, the $130 billion U.S. pet market offers Chewy plenty of room for growth over time.
Today, Chewy shares are trading for 1.4 times sales, down from more than 7 back in 2021 -- when the company wasn't even profitable. This looks like a bargain for a stock that has what it takes to advance over time.
