The past month's rapid stock market correction may have opened up excellent opportunities in high-quality companies that have nonetheless sold off on macroeconomic fears.
Certainly, fears over the costs of imported goods due to tariffs and a potential recession have decimated consumer discretionary stocks, especially those that make physical goods manufactured in foreign countries.
Still, great companies find ways to win over time. That's why this investor picked up shares in an exciting consumer goods company for the first time during the recent correction.
NYSE: SN
Key Data Points
Taking a bite of SharkNinja
Before you laugh at the name of SharkNinja (SN 2.05%), you may want to take a look at its very serious growth.
Some may not be aware of this $12.5 billion company, as it just went public in July of 2023. That's when these two consumer products brands, Shark and Ninja, were spun out of Hong Kong-based conglomerate JS Global. Yet while SharkNinja was spun off from the Hong Kong conglomerate, the company is very much American, based in Massachusetts.
Making products people love
SharkNinja had about $5.5 billion in sales last year, nearly evenly split between the Shark brand, spanning 15 household cleaning and beauty-oriented product sub-categories, and the Ninja brand, spanning 21 kitchen and food preparation products.
SharkNinja takes a disruptive and modern approach to product innovation, initially engaging in deep research to understand customer pain points. The company then takes these intensive marketing insights to its 1,000 cross-functional engineers and designers, which aim to make products that will earn 5-star ratings on e-commerce websites.
By aiming to please the most discerning customers, SharkNinja garners intense brand loyalty. This is also reflected in its marketing strategies, where SharkNinja makes wide use of both traditional infomercials as well as newer social media influencers to spread word of its products in a viral manner.
Finally, SharkNinja aims to make its premium, innovation-forward designs available at reasonable prices, like the mass-premium product positioning of the iPhone. And like the iPhone, SharkNinja makes heavy use of efficient third-party manufacturing in low-cost geographies in Southeast Asia. As I'll mention soon, this sourcing has been a recent cause for concern, but the situation is probably less dire than one would think at first glance.
Its growth outlook is robust
SharkNinja has backed up its vision with big-time growth. Not only has the company grown market share across its core vacuum and blender categories, but ShankNinja has continued to enter new product categories, expand distribution, and grow internationally. For instance, SharkNinja entered four new sub-categories last year alone, including an LED beauty facemask, indoor-outdoor fans, a frozen-drink maker, and a portable cooler, which marked the company's entry into sporting goods.
Since 2008, SharkNinja has grown its revenue at a 21% annualized rate; however, what's even more impressive is how management has managed to accelerate growth in more recent years. Since 2018, the company has grown revenue at a 24% annualized rate, capped off by a particularly strong 30% growth last year. That accelerating pattern has defied the law of large numbers.
While the company has lots of growth in the rearview mirror, it still appears to have a long runway ahead. Growth currently comes from three avenues: taking market share in its existing core categories, entering new categories, and geographic expansion. International markets grew 40% last year, and now make up 31% of revenue. The company is just gaining a foothold in Western Europe, so there still appears a lot of international white space for SharkNinja to penetrate across the globe.
Image source: Getty Images.
Management has impressed on margins and outperforming guidance
Another strength of SharkNinja has been management's solid capital allocation and its record of routinely surpassing expectations.
One particularly strong trend has been the increase in gross margins in recent years. Over the past three years, SharkNinja's gross margins have leapt from 40%, to 46.9%, to 49.1%. That margin expansion has resulted in a strong return on equity at 25.7%, despite management still making substantial investments in R&D and marketing. That strong ROE, even for a young growth company, shows prudent capital allocation.
Finally, management has a record of guiding conservatively. In the beginning of 2024, management guided for adjusted net sales to rise between 7% and 9%. But SharkNinja wound up growing 30% last year, absolutely trouncing its initial target.
In that light, management's more optimistic guidance for 10% to 12% growth this year is encouraging. And with adjusted net income set to grow 12% to 15% to between $4.80 and $4.90 per share, shares trade at just 17.5 times the midpoint of that guidance.
Says it can mitigate the tariff impact
Of course, even with all these positives, SharkNinja's stock hasn't been immune to the tariff-related sell-off. The company may have been hit particularly hard, as all its manufacturing takes place in Southeast Asia.
However, not all of the company's manufacturing happens in China, as SharkNinja also has capacity in Vietnam, Thailand, Indonesia, Singapore, and Malaysia, which are subject to no or lower tariffs than China. For its biggest products, the company has dual sources of manufacturing.
Encouragingly, management noted on its recent conference call with analysts that it will be able to shift about 90% of all U.S. volume outside of China by the end of the second quarter, and can shift all U.S. volume out of China by the end of the year. So, the tariff problem may not be quite as dire as some market participants think.
High growth and ROE at a reasonable price
Given all of the noise around tariffs and their prospective negative effects on the economy, it's quite possible there could be more near-term downside for SharkNinja. However, this is a high-ROE growth company run by a management team with a great track record, trading at a below-market multiple. Therefore, I think this dip will wind up being a good opportunity for long-term-focused investors to pick up shares.
