Not every stock that falls hard ends up bouncing right back. In fact, Wall Street is often correct to push shares lower when a company's growth and earnings prospects worsen.
Having said that, many stocks get punished by the market even though the underlying business is strong and simply going through a temporary slump. This situation can create excellent buying opportunities for long-term investors willing to be a little patient.
Below, we'll look at a few stocks that seem to be primed for a rebound. Read on for some good reasons to buy Chewy (CHWY 1.23%), Garmin (GRMN +2.16%), and Etsy (ETSY +5.34%).
NYSE: CHWY
Key Data Points
1. Chewy
Chewy's shares are well below their all-time highs even after a slight recovery in recent weeks. That underperformance can be explained by the e-commerce specialist's post-pandemic growth hangover and some worry about the economy at the moment. Pet owners scaled back on spending over the last year or so, which contributed to a 1% year-over-year decline in Chewy's customer base. But this business's best growth days are still ahead of it.
Consider that in late May, Chewy announced surprisingly strong sales growth and record subscriptions to its Autoship service despite boosting prices. Revenue gains accelerated to 14%, and Chewy's adjusted profit margin rose to 4% of sales from 2.5% a year ago.
The company is also primed to enter its first international market later in 2023, likely laying the groundwork for more expansion. Watch for steady increases in market share and profitability to power a rebound in this stock over the next few years.
NYSE: GRMN
Key Data Points
2. Garmin
A pullback in demand for parts of its tech product portfolio led to unusually weak results for Garmin recently. Sales in the most recent quarter fell 2% year over year, in fact, and profitability declined.
But Garmin still enjoys some of the strongest profit margins in the industry, with operating income of over 17% of sales. It has a wide portfolio of products, too, ranging from premium wearable devices to full-fledged navigation platforms for aircraft. This depth provides valuable stability when some niches aren't performing as well.
Garmin is highly likely to see its sales and profit trends bounce back as the industry recovers. And shareholders who own the stock will benefit from that boost. They simply must be patient while the business stabilizes over the next few quarters.
NYSE: ETSY
Key Data Points
3. Etsy
Etsy hasn't fully put its pandemic-related growth hangover behind it. The e-commerce platform provider reported a 5% year-over-year drop in sales volumes in Q1, after all. But overall revenue jumped 11% year over year, thanks in part to rising seller fees. Etsy also returned to growth in its core buyer metric even as peers such as eBay continued shrinking following the pandemic demand surge.
Shareholders have more reasons to be excited about long-term growth. Etsy is making improvements to its browsing, searching, and curating functionality. All of these will make the platform more valuable to buyers and sellers. The prospect of a steadily expanding portfolio of buyer services, meanwhile, should allow its fees to rise over time.
ETSY Operating Margin (TTM) data by YCharts
Risk-averse investors might want to wait for more concrete signs that Etsy's growth is accelerating again. But by that point, the stock might already have recovered. Consider taking advantage of the short-term pessimism to buy this stock at a discount.
