Growth stocks are often favored on Wall Street for their potential to generate market-beating returns. It's much easier for a business to grow its earnings, after all, when it's in a position to steadily and rapidly boost sales.
With that in mind, let's consider a trio of growth stocks that look like attractive buys today: Ulta Beauty (ULTA -2.08%), Palo Alto Networks (PANW 0.11%), and Constellation Brands (STZ -0.04%).
1. Ulta Beauty
There was a lot for investors to love about Ulta Beauty's latest earnings report. The make-up and beauty products retailer grew comparable-store sales at a blazing 16% clip in the fiscal year that ended in late January, even after boosting sales by 38% in fiscal 2021. Its annual sales are now comfortably above $10 billion, compared to $6 billion two years ago.
Importantly, Ulta Beauty wasn't relying solely on higher prices to boost those revenue numbers. Customer traffic rose 2% year over year in Q4 -- a period when most of its retailing peers saw declining transaction volumes.
Ulta is projecting another year of growth ahead in fiscal 2023 as its operating profit margin is holding steady at an excellent 15% of sales. These results imply strong returns ahead for the stock.
2. Palo Alto Networks
There are good reasons why Palo Alto Networks' stock price is rallying in 2023.
The cybersecurity specialist in late February revealed that billings grew 26% to $2 billion in its most recent fiscal quarter (which ended Jan. 31), thanks to steady demand for its software and cloud-based products.
"We continue to see our teams execute well in the midst of macroeconomic challenges," CEO Nikesh Arora said in the earnings press statement.
Investors are just as excited about the fact that Palo Alto Networks is finally profitable. The company booked net income of $100 million during the last six months compared to a $200 million loss in the prior-year period. Executives are aiming to steadily push its margins higher over the next few years, and investors should see excellent rewards from that shift.
3. Constellation Brands
Constellation Brands' shareholders found good reasons to celebrate in recent months. The alcoholic beverage giant in early April announced strong growth in its core beer business and continued improvements in its wine and spirits segment, which previously had been pressuring earnings.
Sales overall rose 7% in the past fiscal year thanks to market share gains for brands like Corona, Modelo, and Kim Crawford.
Constellation Brands is pouring money into upgrading its Mexico brewery network, yet its gushing cash flows still support a growing dividend and ample stock buybacks. Management projects that fiscal 2024 will be another year with nearly $3 billion of operating cash flow.
Combined with the prospect of expanding margins in its wine and spirits segment, this move should power much higher earnings over time.
Growth stock investors should also benefit from the management team's smart capital allocation strategies, which have positioned the business in attractive niches like premium imported beers, premium wines and spirits, and now recreational cannabis. Look for continued wins along these lines in 2023 and beyond.
