Growth stocks have faced mixed sentiment from investors over the last few years despite the prolonged bull market. Concerns about the economy and its impact on businesses across a range of sectors has persisted as many have waited for interest rates and inflation to gradually tamp back down.
Great companies have continued to move on from the pandemic era in varying degrees, and investing in quality businesses for the long term can grow your portfolio in a wide range of market environments. If you have $500 to invest right now, here are two top growth stocks to consider for part or all of that amount.
1. PayPal
Shares of PayPal Holdings(NASDAQ: PYPL) slid slightly after the company's recent earnings report, but still trade up by around 30% since the beginning of 2024. The company is also down considerably off its all-time highs, with shares around one-third of their valuation in 2021.
PayPal has certainly dealt with a bumpy several years after its pandemic highs, which were followed by a series of tough quarters. Difficult year-over-year comparisons to unusual periods of growth as well as stalling user growth were just two factors that led some investors to dump the stock.
It was far from the only business that experienced unusual levels of growth in the earlier days of the pandemic, to be followed by an inevitable cliff as normalization happened. Changing consumer spending in the wake of rising inflation and economic difficulties also eroded e-commerce sales for many brands, which flowed directly to payment volume impacts for PayPal.
Many businesses are cyclical and deal with differing periods of growth as well, and there's also the fact that PayPal is a much more mature business now than it was a few years ago. That being said, it has been consistently delivering improvements in recent quarters, which has certainly been the tide lifting shares prices in 2024. Looking at the company's results for the third quarter, there were some definite high points worth noting.
Net revenue rose 6% from the year-ago period to $7.8 billion, and operating income according to generally accepted accounting principles (GAAP) jumped 19% to $1.4 billion. Even though the number of active accounts on the PayPal platform only rose about 1% from one year ago, total payment volume was up 9%.
Payment transactions per active PayPal account also jumped 9% on a trailing-12-month basis. The company was profitable in the quarter, bringing in net income of $1.1 billion, a slight 1% decrease from the year-ago period. It also brought in cash from operations totaling $1.6 billion.
These are not financial figures from a flailing business, but rather one that has had to adjust to a rapidly evolving spending environment affecting both the consumers and businesses transacting on its platform. If you're a long-term investor looking at a holding for a minimum of three to five years, though, there's still a lot to like about this stock and where it's going.
2. Chewy
Chewy(NYSE: CHWY) has seen shares skyrocket by about 67% over the last six months as investors seem to have taken a renewed interest in the stock that was once a pandemic favorite. The e-commerce platform is known for pet food and toys, but it also sells a wide range of other products.
The company has been continuously refining its lineup of products and services over the last few years to increase its competitiveness across various pet spending categories. It sells pet health insurance, it has its own compounding pharmacy and a lineup of pet wellness products, and even offers a pet telehealth service letting owners connect with a vet on-demand via chat or video call.
Recently, Chewy surprised some investors when it decided to open brick-and-mortar veterinary locations across the country. However, a closer look shows that this fits right in with the company's long-term strategy.
Chewy has long worked parallel to and supported veterinary clinics with its range of pet care, various software services, and streamlining the shopping experience on its e-commerce site. Its first veterinary clinics were launched in South Florida, where the company is headquartered. And by the time of its second-quarter earnings call, it already had six locations in operation including one in Colorado. CEO Sumit Singh gave the following update on the call:
Although it is early, the leading indicators are promising. First, Chewy Vet Care is serving as an acquisition funnel with the proportion of net new customers acquired through our clinics exceeding our expectation. Second, clinic engagement is accelerating our NSPAC [net sales per active customer] curves, supported by both spending on veterinary services and strong cross-category shopping behavior.
In clinic, many customers are deepening their commitment to the Chewy ecosystem by purchasing pharmacy or food for the first time. And similarly, we are seeing a highly positive impact on Chewy.com visits following a clinic appointment. Finally, and importantly, we continue to see high interest levels from the veterinarian community, who view the Chewy Vet Care value proposition as compelling and recognize the strength and halo effect of the Chewy brand.
Overall net sales rose 2.6% to $2.86 billion in the second quarter, while net income soared to more than $299 million, a staggering 1,380% increase from a year ago. Its Autoship sales -- recurring deliveries that its customers set up for their favorite products -- comprised 78% of all net sales. That was a 6% increase from one year ago.
It's also important to note that 85% of Chewy's net sales come from consumables and health categories, which are non-discretionary sources of consumer spending.
This is a profitable business that has still barely tapped into its total addressable market in the U.S. and has already set its sights on international expansion. It recently made its platform available to pet owners in Canada. Investors who buy this stock now and hold it for the long run could still benefit from a considerable growth story.
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*Stock Advisor returns as of October 28, 2024
Rachel Warren has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chewy and PayPal. The Motley Fool recommends the following options: long January 2027 $42.50 calls on PayPal and short December 2024 $70 calls on PayPal. The Motley Fool has a disclosure policy.
