Adding to your winning stocks can be one of the hardest but most important things to do when investing. After a strong market so far in 2023, there are plenty of investors sitting on an opportunity to do just that as they consider what investment actions to take in 2024.
Writing an article around this time last year under the same title, I explained why SoFi Technologies (SOFI 3.69%), Progyny (PGNY -1.42%), Kinsale Capital (KNSL -17.31%), and Lovesac (LOVE -0.05%) (LOVE -0.05%) were four of my favorite stocks to become unstoppable multibaggers.
Buoyed by a strong market, these selections showed signs of success early on, with a basket of these four stocks rising an average of 47% in 2023.
SOFI Total Return Level data by YCharts
As a long-term investor, I generally buy stocks with the idea of holding these businesses for a decade and beyond. After their strong runups in 2023, are these four stocks still investable at today's higher prices? Here's why I think that answer is a resounding yes.
1. SoFi Technologies
Bolstered by an end to the student loan moratorium and higher interest rates significantly boosting demand in the personal loan industry, SoFi Technologies was firing on all cylinders throughout 2023.
Part of the reason for that is that SoFi, once better known for its lending operations, has rapidly transformed into a true (and very quickly growing) bank. Last year, when I mentioned the company as a multibagger prospect, its financial services unit only accounted for 11% of revenue. Four quarters later, this figure sits at 21% of sales.
Wilder yet, this financial services segment grew revenue by 141% in the third quarter compared to last year -- all while recording a positive contribution profit for the first time. Delivering financial products such as checking accounts, credit cards, investment accounts, and Relay (similar to the soon-to-be-defunct Mint), this unit saw banking products in use rise by 50% in the third quarter.
The unit remains anchored by its popular savings account product, offering a market-leading 4.6% interest rate, attracting nearly $16 billion in customer deposits in just a few years. Growing by 23% quarter over quarter, these sticky direct deposits are vital to SoFi's future, as they now finance roughly 65% of its lending portfolio, providing the company with a war chest of funding.
With management expecting to deliver its first quarter of generally accepted accounting principles (GAAP) profitability in the upcoming fourth quarter and (theoretically) every year from now on, SoFi's growth story could still be in its early chapters, even after its stock doubled in 2023.
2. Progyny
With 1-in-5 women dealing with infertility issues -- the rate was 1-in-8 just four years ago -- Progyny and its fertility benefits solutions aim quite literally to bring happiness into the world. Progyny connects its 392 corporate clients to its network of fertility specialists at a price that is 25% lower than a traditional carrier-based program -- all while recording a track record of pregnancy outcomes that beat national averages.
In addition to providing better pregnancy rates, lower miscarriage rates, and live birth rates than the national averages, Progyny's services have a net promoter score (NPS) of 81. Ranked on a scale of -100 to 100, an NPS measures how likely a customer is to recommend a product to their friends, with Progyny's mark being one of the highest worldwide, regardless of industry.
Growing revenue by 48% since I mentioned it last December, Progyny may be cheaper now than it was a year ago, with its stock "only" up 16% since.
Trading at a reasonable price-to-sales (P/S) ratio of 3.4, Progyny's high growth, steadily climbing 8% free cash flow margins (even without stock-based compensation), and importance to the world keep it a top multibagger candidate to hold forever.
3. Kinsale Capital
Kinsale Capital is the only pure-play excess and surplus (E&S) insurance on the publicly traded markets, covering unique insurance areas such as cannabis tours, rage rooms, racetracks, and blood banks, along with a few traditional lines like construction. This specialization helps Kinsale deliver best-in-class operating metrics -- such as its 83% combined ratio and 21% return on equity that I bragged about a year ago.
However, as incredible as these figures were, they've improved to 77% and 32% for the first three quarters of 2023. Despite this improvement from its already market-leading profitability metrics, Kinsale's stock has slightly lagged the market over the last year, succumbing to a 20% drop in share price in a single day due to "slower" 33% growth in written premiums.
Regardless of this slowdown in premium growth, Kinsale grew earnings per share by 93% over the last year, leaving its stock trading at a much more reasonable valuation than a year ago.
KNSL PE Ratio data by YCharts
Still only accounting for a 1.1% share of the E&S industry, Kinsale's focus on its odd (and unloved) niche of the insurance world leaves it poised to remain an unstoppable force, continuing to insure lines its larger peers want nothing to do with.
4. Lovesac
Repurposing over 150 million plastic water bottles for use in its rearrangeable, built-for-life furniture, Lovesac aims to disrupt the traditional furniture market with a focus on conscious capitalism.
Despite facing a brutal consumer spending environment throughout 2023, Lovesac's stock has rallied over 50% in the last month as the company reported 14% sales growth compared to the furniture industry's low-single-digit growth in 2023. While this growth remains slower than its historical rate of 37% annually over the last five years, it highlights the company's ability to continue gaining market share at an outsized pace.
Most importantly for investors, Lovesac owns a stellar 5.3 customer lifetime value-to-customer acquisition cost (CLV/CAC) ratio, highlighting its ability to find valuable lifelong customers at a relatively cheap marketing cost. Traditionally, a score above 3 is considered good, making Lovesac's score exceptional. This high CLV/CAC ratio is crucial to Lovesac because once it brings new customers on board, they typically buy additional, supplemental items due to the modular, customizable, and interchangeable nature of the company's furniture.
Trading at 11 times price to free cash flow and 22 times price-to-earnings, Lovesac's "true" valuation probably lies somewhere in between.
LOVE Price to Free Cash Flow data by YCharts
This remains a deep discount to the S&P 500's average price-to-earnings ratio of 25, leaving Lovesac looking like a future multibagger thanks to its steady market share gains, consistent profitability, and loyal customers.
