Over the past 12 months, the S&P 500 rallied more than 20%. It is hovering near its all-time high and looks historically expensive at 29 times its trailing earnings -- so this might not be the best time to hunt for bargain stocks.
But digging a bit deeper, investors will notice that plenty of stocks are still trading at discount valuations. Let's examine three of those unloved and undervalued stocks -- Carnival (CCL -2.21%), Lyft (LYFT -5.52%), and Peloton (PTON 10.34%) -- and see how they might churn a modest $3,000 investment into a lot more money over the next few years.
Image source: Getty Images.
1. Carnival
Carnival, the world's top cruise line operator, suffered a severe slowdown in fiscal 2020 and fiscal 2021 (which ended in November 2021) as the pandemic disrupted global travel. To stay solvent during that crisis, it idled its ships, reined in its spending, and nearly tripled its year-end debt from $11.5 billion in fiscal 2019 to $33.2 billion in fiscal 2021.
But over the following three years, Carnival's business stabilized and recovered, it attracted more passengers, and its occupancy percentage exceeded 100% again. It also returned to profitability on a generally accepted accounting principles (GAAP) basis in fiscal 2024 -- thanks to its higher fares, more onboard spending per customer, and lower fuel costs -- as it reduced its net debt to $27.5 billion by the end of the year.
From fiscal 2024 to fiscal 2027, analysts expect its revenue and EPS to increase at a compound annual growth rate (CAGR) of 5% and 22%, respectively. Those are solid growth rates for a stock that trades at just 13 times next year's earnings.
If you expect Carnival to match or exceed those estimates as global travel warms up again, this could be a great time to buy its stock, which still trades more than 55% below its all-time high from January 2018.
2. Lyft
Lyft, the second largest ride-sharing and mobility services provider in the U.S. and Canada, also struggled during the pandemic as more people stayed at home. It also grappled with driver shortages and intense competition from Uber.
But as those headwinds dissipated, Lyft bounced back by offering more competitive rates, increasing its driver availability, and expanding its ecosystem with fresh features -- including Lyft Pass service for businesses, Lyft Pink membership program, Lyft Silver service for older riders, Price Lock subscriptions for set prices, and Lyft Media platform for in-app and in-car ads.
In its latest quarter, the company's number of active riders grew 10% year over year to 26.1 million as its total number of rides rose 14% to 234.8 million. Both figures were record highs, yet Lyft stock still trades more than 80% below its record high posted in March 2019.
From 2024 to 2027, analysts expect Lyft's revenue and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to grow at a CAGR of 12% and 28%, respectively. It's also expected to grow its GAAP net income, which turned positive in 2024, at a CAGR of 134% over the following three years.
That's an impressive growth trajectory for a stock that trades at less than one times this year's adjusted EBITDA. Therefore, I believe Lyft's stock could attract a lot more attention once more investors realize it's holding its own and won't be rendered obsolete by Uber.
3. Peloton
Unlike Carnival and Lyft, Peloton thrived during the pandemic. Its sales of connected bikes and treadmills soared as gyms closed and more people stayed home. But after the pandemic lockdowns passed, its sales tumbled. It also faced fierce competition from cheaper brands like Echelon and stand-alone workout apps that didn't require any equipment.
As Peloton's top-line growth stalled, the company focused on stabilizing its margins and free cash flow by expanding its stickier subscriptions, reining in markdowns, outsourcing production overseas, selling products through more third-party retailers, as well as pruning its workforce. So even though Peloton's revenue is still declining as it sells less equipment and loses more paid subscribers, its gross margins are expanding as the company narrows net losses.
Peloton is still on shaky ground, it's being led by its third CEO since its IPO in 2019, and analysts expect its revenue to decline until at least 2026 as it remains unprofitable.
Pelton stock also trades more than 95% below its record high reached in January 2021. But with an enterprise value of $3.3 billion, shares looks dirt cheap at 1.3 times next year's sales. So if it finds fresh ways to expand its base of 2.98 million paid connected fitness subscribers and 0.62 million paid app subscribers, the stock might command a higher valuation and bounce back.
