Most investors are enjoying the recent bounce in equity prices, but for some shareholders the bounce has been more of a catapult. Shares of Celsius (CELH 2.12%), Nu (NU 1.66%), and Wayfair (W 2.08%) have soared more than 50% just in the second quarter. The three stocks have risen 51%, 62%, and 61%, respectively, since the end of March.
The gains are substantial, but are they sustainable? Let's take a closer look at the functional energy drink specialist, the Latin American next-gen banker, and the online furniture retailer. All but one of them appear well positioned to keep moving higher from here.
1. Celsius
The selling point for a can of Celsius is simple. Drink it, and the proprietary blend of ingredients triggers thermogenesis, safely bumping up your body temperature to the point where it can burn more fat and calories during a workout. It's not just the beverage drinker that's been working out. Celsius stock is a 30-bagger over the past five years.
Celsius may have initially found a receptive audience at gyms, fitness centers, and yoga studios, but it has clearly gone mainstream. The fruit-flavored sparkling beverages are available at most grocery stores and mass market retailers.
Another blowout quarter was behind the springtime surge. Revenue soared 95% in the first quarter, obliterating the 64% top-line increase that analysts were modeling. Its profit more than quadrupled, doubling the earnings that the market was expecting.
Image source: Getty Images.
This kind of heady growth isn't sustainable for long, but Celsius is also just scratching the surface outside of its home turf. Just 4% of its sales are currently happening outside of North America, but that could change with PepsiCo as a distribution partner. PepsiCo acquired an 8.5% stake last summer, and with that the potential for expanded worldwide distribution.
Celsius isn't a cheap stock. Paying 14 times trailing revenue is a stiff multiple in the historically slow-footed world of beverage stocks. However, strong momentum and PepsiCo helping the brand expand its reach could add a few more years to the healthy growth here.
2. Nu
You'll have to travel south to find the next stock heading north this quarter. Nu is a fast-growing provider of digital financial services in Latin America. The Brazil-based parent of Nubank saw its revenue surge 87% on a currency-adjusted basis.
There are now more than 80 million Nu accounts across Latin America, increasing 33% over the past year. Most of its business is taking place in its home country, where 46% of the Brazilian adult population has an account. Nu has gone on to launch in Mexico and Colombia, but it will take time for those countries to move the needle.
Duplicating its fintech success outside of its home market isn't a given, and there are concerns about potentially negative regulatory changes to Brazil's credit card industry. However, Nu is a rarity in the banking market. Customers actually like the platform. Nu is also generating roughly a third of the revenue per customer as traditional Latin American banking giants, giving it room to grow as it deepens its relationship with satisfied customers. The stock isn't cheap, but this kind of growth so early in its potential life cycle is worth a meaty market premium.
3. Wayfair
The third big gainer this quarter is Wayfair. It seemed to crack the code a few years ago for getting consumers to pay up for big-ticket furniture pieces and accessories without a physical showroom visit, but the current climate hasn't been kind. Wayfair has posted eight consecutive quarters of year-over-year declines in revenue.
The market has intensified, and many of the innovations that Wayfair introduced are now common elsewhere. Rising borrowing costs and a lull in the real estate market also aren't helping. Losses are starting to narrow, but it's still at least two years away from turning a profit. Analysts don't see Wayfair topping its 2020 revenue until 2026.
Wall Street pros have been jacking up their price targets on Wayfair in recent weeks, but they appear to be reacting more to the rising share price than any improvement in fundamentals. Risk-tolerant investors are right to be excited by the prospects for Celsius and Nu, but buying into the Wayfair rally doesn't seem safe until the furniture e-tailer starts to earn the upticks with an actual turnaround.
