One of the main challenges in investing is figuring out how much risk you're willing to take to capture the biggest rewards. Bull markets often drive investors to take on too much risk, while bear markets cause them to hastily dump their riskier assets.
Riskier growth stocks will likely remain out of favor in the current market as long as interest rates stay elevated, but some of those stocks could head a lot higher once the macro environment improves. I believe these three hypergrowth plays fit that description: On Holding (ONON 2.66%), Celsius (CELH 2.12%), and PDD Holdings (PDD 2.80%). Let's find out a bit more about these three growth stocks with potential big upsides.
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1. On Holding
On is a Swiss footwear and athletic apparel maker. It targets runners and triathletes with its proprietary CloudTec shoe cushions -- which expand when a foot is airborne and tighten up to form a firmer foundation for the next step when it hits the ground. It mainly targets higher-end shoppers, avoids promotions, and is rapidly expanding its direct-to-consumer (DTC) channel with its online marketplaces and small fleet of brick-and-mortar stores.
That strategy is enabling On to grow at a much faster rate than Nike or Lululemon Athletica. Its revenue surged 59% in 2020, 70% in 2021, and 69% in 2022 -- and it anticipates 46% growth to 1.79 billion Swiss francs ($2.1 billion) in 2023. That would mark a compound annual growth rate (CAGR) of 61% from 2019. On believes it can "at least" double its annual revenue to 3.55 billion Swiss francs ($4.2 billion) in fiscal 2026, which would represent a CAGR of 26% over the next three years.
On turned profitable in 2022, and analysts expect its earnings to rise 87% this year. Those growth rates are stunning, yet its stock trades at just 28 times forward earnings and is hovering about $2 above its initial public offering (IPO) price as of this writing. On's shares are under pressure as investors carelessly toss the company into the same sinking boat as Nike and other struggling footwear makers, but I believe it's a deeply undervalued hypergrowth stock at these levels.
2. Celsius
Celsius sells sugar-free energy drinks that blend natural ingredients like green tea, ginger, and amino acids with a dose of caffeine. It aims to pull health-conscious consumers away from energy drink giants like Red Bull and Monster Beverage.
That strategy has been working so far. From 2017 to 2022, its revenue grew at a stunning CAGR of 78%. Analysts expect its revenue to roughly double in 2023 and grow another 39% to $1.8 billion in 2024.
A lot of that growth was driven by a new U.S. distribution partnership with PepsiCo, which could pave the way for its expansion into more overseas markets. PepsiCo also invested $550 million in Celsius in a move that closely mirrors Coca-Cola's $2 billion investment in Monster in 2014.
Celsius racked up a net loss in 2022 after it paid a one-time termination fee to part ways with its existing U.S. distribution partner to work with PepsiCo. But in 2023, analysts expect it to return to profitability as it laps those losses and scales up its business. Celsius' stock might not seem cheap at 56 times forward earnings, but it could still have a lot of room to run.
3. PDD
PDD, more commonly known as Pinduoduo, is China's third-largest e-commerce company by annual revenue. However, it's growing a lot faster than its two larger competitors, Alibaba and JD.com.
From 2018 to 2022, PDD's revenue rose at a CAGR of 77% in USD terms. It also turned profitable in 2021, and its net profit nearly quadrupled in 2022. Analysts expect its revenue and earnings to soar 81% and 49%, respectively, in 2023.
PDD's growth has been driven by three main catalysts. First, it locked in a lot of China's lower-income shoppers by driving them to team up on social media platforms to score steep discounts on bulk purchases. Second, it established a first-mover advantage in China's online agriculture market by directly shipping fresh produce from farmers to consumers. Lastly, it benefited from China's antitrust crackdown on Alibaba -- which throttled its top rival's growth with much tighter restrictions.
PDD will likely continue to flourish in China, but it's also expanding rapidly in the U.S. and Europe with Temu, a cross-border marketplace that directly connects Chinese sellers to overseas buyers. But despite all of those obvious strengths, PDD's stock trades at just 21 times forward earnings as the persistent trade tensions and delisting threats continue to depress the valuations of U.S.-listed Chinese stocks. If those tensions ease, PDD's stock could skyrocket as the bulls finally rush back.
