Everyone wants top stock ideas, but their performance in the near term is never guaranteed. Even the best companies should be held long term to have the best chance at market-beating returns.
For those who are willing to make this commitment, apparel retailer Boot Barn (BOOT +5.26%), handmade marketplace Etsy (ETSY +3.74%), and law enforcement technology company Axon Enterprise (AXON +2.56%) can be top stocks for your portfolio. Here's why.
1. Boot Barn
With only 374 retail locations as of Nov. 2, it's likely many investors are unfamiliar with Boot Barn. However, that will probably change by 2030. By then, the company hopes to have 900 locations around the country, greatly increasing its footprint.
NYSE: BOOT
Key Data Points
Boot Barn enjoyed a massive surge in popularity in its fiscal 2022, as evidenced by its same-store sales growth of 53.7%. Its results in fiscal 2023 (ended April 1) look weak by comparison with same-store sales falling 0.1%, and fiscal 2024 is shaping up to be even worse with management projecting a 6.5% to 4.5% year-over-year decline.
Because of this, Boot Barn stock is down and now trades at an incredibly cheap 13 times trailing earnings. And I believe the market is missing the forest for the trees here.
Boot Barn is still growing its top line because it's opening new stores at a rapid pace (52 expected in fiscal 2024). These stores also have an excellent payback period of just 1.5 years because first-year sales have been much higher than management's projections. In short, the brand appears to be gaining consumer awareness.
Moreover, Boot Barn has a portfolio of exclusive brands. They have higher margins and are becoming a larger part of overall sales. In fiscal 2024, sales from exclusive brands are expected to hit 39% of the company's overall sales, up from just 16% of sales in fiscal 2019. This dynamic will continue to support its strong operating profit margin of around 12%.
In short, Boot Barn is growing and delivering strong profitability, and the stock trades at a cheap price. That's a good combination for a long-term investment.
2. Etsy
Like Boot Barn, shares of Etsy have fallen substantially -- down about 75% from their all-time high. The stock has dropped into unprecedented value-stock territory, both from a sales and a free-cash-flow perspective, as the chart shows.
Data by YCharts.
OK, so Etsy stock is cheap. But is there any reason to believe it can grow and reward shareholders from here? The answer is yes.
For starters, let's remember the adoption of Etsy's core platform (it owns two other e-commerce marketplaces that I'm excluding from this discussion) is at an all-time high. The company had 92 million active buyers as of Q3 2023. Listings are also at a high with 120 million items for sale.
NYSE: ETSY
Key Data Points
In other words, Etsy has the buyers, and it has the merchandise. Now, it simply needs to get better at connecting the two, and that's what it's working on. Management admits its search hasn't been the greatest in the past, but it's investing time and money to make sure buyers are shown increasingly relevant products when browsing the platform.
If it fails, Etsy will likely stay a low-growth but highly profitable company. Given the stock is cheap already, I believe this limits its potential downside. However, if Etsy succeeds at improving search, revenue growth could pick back up and send the stock higher. And for what it's worth, I'm expecting the latter.
3. Axon Enterprise
Finally, I've come to the most expensive stock on this list with Axon Enterprise. Trading at 11 times its trailing sales, it's expensive even by Axon's standards (the stock's five-year average is about 10 times sales). I've yearned to present this company to readers at a cheaper price for a long time, but the stock rarely goes on sale because the business executes extraordinarily well, quarter in and quarter out.
NASDAQ: AXON
Key Data Points
For example, Axon has grown revenue 30% or more for seven consecutive quarters as of Q3 2023. And it's achieved this stellar growth while still earning net profits. That's rare.
I point out the hefty price tag on Axon stock not to deter investors but rather to reiterate that this is a stock for the long haul -- the company needs to keep its exceptional growth going for a long time. And fortunately for shareholders, there's plenty of opportunity.
Axon sells Tasers and body cameras and provides software to local law enforcement agencies, which is a big market in itself. But increasingly, the company is finding new opportunities with federal agencies as well. Management pointed out that half of its top 10 deals in Q3 came from federal customers.
Axon's progress with federal agencies is encouraging because it's a $10 billion opportunity, according to management. The company expects to grow here and in other areas as well. Specifically, management believes its hardware and technology can solve problems beyond its core-use cases, including monitoring job sites with video and logistics tracking, just to name a few.
In summary, Axon stock trades at a premium price. However, it's fast growing, and its opportunity is constantly expanding, which gives it a good shot at delivering continued market-beating upside, just like Boot Barn and Etsy stocks.
