One of the biggest mistake new individual investors make is buying stocks at the wrong time. According to Peter Lynch, though, money managers do this too, so no one should feel too bad about making rookie errors that aren't just for rookies. It's not always easy to see beyond the hype of a a soaring stock, but once it's reached levels that attract investor attention, it can mean the ascent is slowing, or even over.

Often, a better approach to investing is finding stocks before they take off, or that investors have pushed down due to short-term concerns. Nu Holdings (NU 1.66%) and Revolve Group (RVLV 1.96%) are two great examples, and smart investors should consider buying them.

1. Nu: Not Warren Buffett's typical stock

Nu is a Brazil-based digital bank that's demonstrating phenomenal growth and has a strong trajectory upward. It's even captured the attention of Warren Buffett, who usually looks for value stocks.

In 2023's second quarter, revenue increased 60% over last year. Nu added 4.6 million customers, a 28% increase over last year, for a total of 83.7 million. In addition to its headquarters in Brazil, it operates in Colombia and Mexico.  

These are all three growth regions for Nu, but it's important to note just how much opportunity it has in each location. In Brazil, it already has 49% of the adult population, or almost half, as customers. That's an incredible feat, considering that it's a relative newcomer, and that the banking industry has historically been controlled by five large, traditional banks. 

And growth in Brazil is far from over. Aside from capturing the remaining population, Nu's strategy revolves around upsells and cross-sells. It hooks customers in with low fees and easy-to-use products, and satisfied customers increase their engagement with the company, adding more products and services.

That's just Brazil. The opportunity in Mexico and Colombia is enormous, because as of the end of the first quarter of 2023, Nu had only 3% and 2% of the population of these countries, respectively, as customers. That gives it years of continued growth in capturing the market, with the added growth opportunities in upselling. 

Finally, there are many other Latin American countries that Nu could enter at some point, but growth is so strong in its current markets, that's not even on the table yet.

In fewer words, this is a top growth stock. On top of that, it's demonstrating that it can achieve this growth while keeping costs down. In the second quarter, average revenue per user increased from $7.80 to $9.30, while the average cost to serve each user remained at $0.80. This led to positive net income of $225 million in the second quarter after a loss in 2022.

Nu stock costs $8 per share, and shares trade at a forward 1-year price-to-earnings ratio of only 22. For a high-growth stock with a massive opportunity, that's a truly incredible bargain.

2. Revolve: The AI answer to fashion

Revolve isn't a growth story right now, because it's been negatively impacted by inflation and other economic factors. But it should rebound and return to its former high growth when the climate becomes more hospitable to consumer goods.

Things weren't pretty in the second quarter, to say the least. Sales decreased 6% from last year, and net income was cut in more than half to $7.3 million. 

It wasn't all bad, though. Aside from the regular financials that investors want to see, Revolve always reports three metrics that tell its story more fully. These are active customer growth over the trailing 12 months, orders placed, and average order value.

In the second quarter, active customers increased 14% over last year, and orders placed increased 1%. Average order value declined 1%. This narrative tells investors that customers are still buying, and more are getting onto the platform. At the same time, inflation is impacting how much they spend, and the company is marking down prices to move inventory. These are mostly positive trends when viewed in the framework of Revolve's potential.

Revolve uses artificial intelligence (AI) to inform all of its systems, and it's a completely digital operation, which gives it a leg up over legacy apparel retailers as consumers move online. These capabilities usually lead to a high full-price sales rate, although that's changed in the current environment.

Management gave a recent example of how it upgraded its AI system to better match user searches for sold-out products to more similar results, with notable conversion rates. So while sales are down right now, it's positioning itself for big wins later.

Revolve stock is down 41% this year, and at the current price, it trades at 19 times forward-1-year earnings estimates. This is a great opportunity to buy on the dip and reap the rewards later.