Fifty years ago, it wasn't so easy to find hot growth stocks. Information wasn't easily available. But for investors like Warren Buffett who were willing to work harder than others poring over printed investment material, screaming buys could be found.
Nowadays, information is more readily available to everyone thanks to changes in disclosure laws and the advent of the internet. Because of this relative ease of access, investors tend to cluster around good opportunities that are also well known.
Therefore, to find good opportunities, I believe investors need to occasionally leave the beaten path. That's my intention with highlighting Ulta Beauty (ULTA 0.59%), Xometry (XMTR 1.47%), and Universal Display (OLED 1.11%) for this article.
1. Ulta Beauty
When it comes to Ulta Beauty, most of its customers are women. So to introduce the company to the fellas, I'll say that this is a retail chain with nearly 1,400 locations as of the end of 2023. And its stores not only sell cosmetics, they also provide services such as hair care.
Ulta has a loyalty program with more than 43 million people, which accounts for more than 90% of the company's sales. This loyalty program is a big reason its same-store sales consistently increase. Moreover, it has a portfolio of exclusive products that are in high demand, accounting for 8% of total sales in 2023.
Ulta Beauty should grow sales as it opens new locations while old locations enjoy higher activity. And the company is consistently profitable. But one of the compelling things about this investment is how serious management is about buying back stock. Through these repurchases, earnings per share (EPS) have soared.
ULTA average diluted shares outstanding (quarterly); data by YCharts. TTM = trailing 12 months.
The stock has dropped nearly 30% from its recent high and now trades at an attractive 15 times earnings. That's a good price for a company with a track record this solid.
2. Xometry
Xometry is one of the few artificial-intelligence (AI) stocks that I believe is underhyped. Its business modernizes a space that few people ever think about: customer manufacturing. But this is a huge market worth thinking about.
As one would expect with a huge market, Xometry is growing nicely. It had 22% top-line growth in 2023 and expects a 12% to 14% increase in the upcoming first quarter.
But long-term results could be sensational. Consider that it generated revenue of less than $500 million in 2023 while management estimates the addressable opportunity at $2 trillion.
Manufacturing is plagued by long lead times. And it has resisted technological disruption because, since each job is unique, digital platforms haven't been able to offer instant pricing.
This is why Xometry is suddenly winning in this market. It's AI instantly prices jobs for buyers, an innovation few players can offer. The company then outsources these jobs at lower prices to third-party shops. Its revenue is the difference between what buyers pay and what it pays the third-party shops.
As of the end of 2023, Xometry had 55,000 active buyers on its platform, which might not sound like a lot. But many of these customers have big spending power. And they're increasing their spending over time as the AI-powered platform proves its merit. For illustration, Xometry's new buyers in 2016 spent $3.3 million, and those same buyers spent $42.2 million in 2023.
Xometry's AI must keep improving so that the company can keep bidding on jobs at better prices and make a net profit. To be clear, that might not ever happen, so this isn't a risk-free investment. That said, the price is right to take a chance on the stock, considering it trades at less than two times sales.
3. Universal Display
Lastly, investors are likely to own products made possible by Universal Display even if they don't realize it. The company owns a vast patent portfolio pertaining to organic light-emitting diode (OLED) technology. And it's poised for growth because OLED is getting an upgrade.
Phosphorescent OLED (PHOLED) is set to replace OLED. Universal Display already has this technology in red and green, and it believes its blue PHOLED will be ready this year. With all three colors, management says PHOLED can be more energy efficient as regular OLED, which gives companies strong incentive to use it when releasing new products.
In smartphones, TVs, smartwatches, and more, OLED screens are becoming increasingly popular, benefiting Universal Display. And the company could get a big revenue boost once manufacturers upgrade devices to PHOLED.
Universal Display licenses its technology to manufacturers and sells the necessary building materials. This is a high-margin business that has put the company in an enviable financial position. It had more than $200 million in net income in 2023, has no debt, and has over $500 million in cash, cash equivalents, and short-term investments -- not bad for a company with a market cap of only $7 billion.
In conclusion, everyone's financial situation is different, so take this with a grain of salt. But when it comes to Ulta Beauty, Xometry, and Universal Display, I would personally be comfortable with investing $1,000 in any of them at today's prices. Profitable growth could be in the cards for each, and they all trade at good valuations, making all three screaming buys today.
