The stock market has had a phenomenal run over the past few years, but it recently slumped into correction territory as traders grew concerned about the possibility that tariffs and a trade war could slow the U.S. economy. As of Thursday morning, the Nasdaq Composite was down about 13% from its peak, and the S&P 500 was off by almost 10%.
History shows that market dips are generally great opportunities to buy quality growth stocks at lower valuations. Buying when Wall Street is pessimistic about the future can set you up for better long-term returns.
If you're in search of promising stocks to buy on this dip, I recommend these two fast-growing companies. While nothing on Wall Street is ever a sure thing, these stocks have the potential to deliver multibagger returns over the next 10 years.
1. Dutch Bros
Identifying up-and-coming restaurant brands can be a great way to find potential monster winners in the stock market. Dutch Bros (BROS 2.06%) is a specialty beverage chain that started in 1992 but just completed its initial public offering in 2021. It had shops open in just 18 states as of the end of 2024, but it's on course to expand across the U.S.
NYSE: BROS
Key Data Points
If a restaurant has had success expanding in a handful of states, chances are, it can be successful nationwide. Dutch Bros reported year-over-year revenue growth of 35% in the fourth quarter, while the stock has doubled over the last 12 months.
There is increasing competition in the beverage market. Privately owned chain 7 Brew is having success, and the fast-growing chain picked up an investment from Blackstone last year. But Dutch Bros is also standing out for its focus on value. This helps explain why it has continued to report growth in same-shop sales, indicating healthy traffic levels, even as coffee segment leader Starbucks' same-store sales have declined over the past year.
Importantly, management is growing the business while keeping costs in check. The business reported trailing-12-month net income of $35 million on nearly $1.3 billion of revenue. This is a low profit margin, but Dutch Bros had a healthy shop-level contribution margin of 29%, which is on par with other leading restaurants. This suggests that its margins are on course to head higher as the company expands and achieves greater scale.
The current stock market dip has brought Dutch Bros shares down from prior highs to a more reasonable valuation. The company's price-to-sales multiple of 5.1 is not cheap, but investors who stick with this growth stock over the next 10 years should end up with handsome gains.
2. MercadoLibre
Another industry that can produce wealth-building returns for investors is e-commerce, and the potential is especially high for the leading players in emerging markets. MercadoLibre (MELI 5.47%) continues to grow like a machine, with the stock up by 1,400% over the last decade. Its latest financial results indicate the company's growth story is far from over, and even better, the stock is trading at its lowest valuation in years on a price-to-sales basis, which suggests it could be undervalued.
NASDAQ: MELI
Key Data Points
MercadoLibre dominates the Latin American region, operating primarily in Brazil, Argentina, and Mexico. These markets have relatively low e-commerce penetration, as many people living in them don't even have access to basic financial services like bank accounts.
MercadoLibre operates an online marketplace, but has also expanded into other services like credit cards and mobile payment solutions. Its core marketplace business continues to expand and strengthen its competitive position. The number of unique buyers on the platform grew by 24% year over year to 67 million in the fourth quarter. The company continues to expand its fulfillment center network to speed up deliveries and improve customer service.
In the last 10 years, the stock's price-to-sales multiple has fluctuated between 3.6 and 25.9. Despite reporting revenue growth of 37% in Q4, the stock now trades toward the low end of that range, at 4.8 times sales. This seems too low considering that MercadoLibre had a profit margin of 10% last quarter, and that metric has been trending upward in recent years.
If its price-to-sales multiple returns to its previous average, the stock would double in price. Even if it doesn't, investors should see excellent returns as MercadoLibre continues to grow its business and reach more customers in a region with 650 million people.
