Finding up-and-coming consumer brands while they are relatively unknown can be a very rewarding investment strategy. The stock market presents these opportunities to investors all the time. You just have to pay attention to what brands people are shopping for more frequently.
Here are two fast-growing brands that could make investors a small fortune over the next 20 years.
1. Cava Group
Investors who jumped on board Chipotle Mexican Grill, McDonald's, or Starbucks in their early years of growth are sitting in the catbird seat today. Cava Group(NYSE: CAVA) is the latest high-flying restaurant stock that is worth betting on for the long haul.
There are plenty of burger, steak, pizza, Italian, Chinese, and Mexican restaurant chains, but there are not many establishments in the U.S. with a Mediterranean-focused menu. The cuisine is seen as a healthy and sophisticated alternative in a sea of the same old options. This is why Cava has experienced impressive customer traffic this year in a challenging consumer spending environment, which has driven double-digit increases in same-store sales.
Strong growth has sent the stock up 185% over the last year, but it's not too late to buy it. Cava's 35% year-over-year revenue growth is on par with Chipotle's growth in its early years as a public company. A $10,000 investment in Chipotle in 2006 would have grown to $634,000 today, and Cava is following a similar growth path.
Cava has a huge runway of growth. Its quarterly revenue of $231 million is a fraction of Chipotle's $2.9 billion. It took Chipotle almost two decades to expand to its current size. Cava is currently in 25 U.S. states and just opened in Chicago with the strongest customer response the business has seen to date.
Importantly, Cava is growing its store base at a rate of about 8% to 9% per year, but management is expanding in a disciplined manner. It posted a net profit of $19 million last quarter. The company will become more profitable as it expands across the U.S., and that should support more new highs for Cava stock.
2. On Holding
The athletic apparel industry has been another ripe market for monster winners in the stock market. A $10,000 investment in Nike 44 years ago would now be worth $7.7 million with dividends reinvested. Investors might have a second crack at gains like this, because On Holding(NYSE: ONON) is currently growing at a similar rate to Nike in the 1980s.
On is one of the hottest apparel brands right now. There were 66 On-sponsored athletes at the Paris Olympics this year. Like Nike, On generates most of its sales from performance shoes, a segment that grew 28% year over year on a constant-currency basis last quarter.
On is seeing strong growth across all the various running shoe styles it offers, but management noted that its all-day comfort shoe Cloudtilt is flying off the shelves. The brand just launched its new Cloudsurfer Next shoe at a relatively low price point that management expects to expand its addressable market.
The popularity of On shoes, especially among athletes, shows the potential of the brand to benefit from partnerships. This is similar to how Nike built its brand. It has already experienced a significant increase in brand awareness from a partnership with actress and singer Zendaya, who has a massive following on social media.
Nike didn't have the advantage of social media 40 years ago, so On could see its brand grow at a more rapid clip than Nike did. On that note, analysts expect the company to grow earnings at an annualized rate of 34% over the next several years, which should support stellar returns for investors.
Should you invest $1,000 in Cava Group right now?
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John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill, Nike, and Starbucks. The Motley Fool recommends Cava Group and On Holding and recommends the following options: short September 2024 $52 puts on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.
