The stock market has delivered average annual returns of about 10% going back decades, which is enough to double your money every seven years. But it's not that difficult to grow your money faster with well-chosen growth stocks.
To give you some ideas, three Motley Fool contributors believe On Holding(NYSE: ONON), MercadoLibre(NASDAQ: MELI), and Dutch Bros(NYSE: BROS) can help you achieve above-average returns. Here's why.
Running past the competition
Jennifer Saibil (On Holding): On has distinguished itself as a top premium brand that is challenging names like Nike and Lululemon Athletica. It stands out for its soaring growth despite inflation, and it's just getting started. It has a massive growth runway as it builds its brands and attracts loyal fans, and growth-minded investors should take a look.
First, the numbers. On reported phenomenal results in the 2024 second quarter, beginning with a 29% year-over-year sales increase (currency neutral). Profitability was outstanding, with gross margin expanding from 59.5% to 59.9% and net income up by 834%.
The results were so strong that Wall Street was willing to forgive its earnings miss -- it was expecting $0.18 in earnings per share (EPS), while On's EPS came in at $0.17. A penny might look insignificant, but Wall Street has crushed stocks for misses that were less than that.
Next, the opportunity. On still has a low brand presence pretty much everywhere, and it's impressing shoppers as it develops its name through marketing efforts, new direct-to-consumer shops, and wholesale distribution deals. It has its finger on the pulse of current shopping trends, and sales are increasing about equally through direct-to-consumer and wholesale channels.
While it's best known for its shoes, many of which feature a unique sole that's become its imprint, its premium branding is earning a following and resulting in interest in its apparel and accessories. All of these categories are growing at a brisk pace, but apparel was a standout in the second quarter, increasing 66% year over year, and it's an opportunity that On is leveraging. It recently launched a partnership with celebrity Zendaya, for example, as a lifestyle and fashion icon, as well as a branded tennis collection.
On is expecting full-year sales growth to ramp up to at least 30%, which is likely what led to the positive market reaction after the results were released, and it's implementing new efficiency models in the second half of the year. Expect On stock to keep soaring this year and in the long term.
This stock has returned 1,600% and is still undervalued
John Ballard (MercadoLibre): Latin America is one of the fastest-growing e-commerce markets globally, and MercadoLibre has capitalized on that to deliver phenomenal returns to shareholders over the last several years.
There are several ways it generates revenue, which speaks to the opportunities it has to deliver growth. It operates a marketplace for buyers and sellers where it earns transaction fees. It also sells its own inventory to consumers from its own fulfillment system. But one of its fastest-growing services is in-store transactions with its fintech offering.
The marketplace continues to show incredible growth in gross merchandise volume (GMV). Brazil and Argentina -- two of its largest markets -- reported GMV increases of 36% and 252% year over year in the second quarter. This comes as the company introduces new shipping options and investments to expand its last-mile delivery capabilities.
MercadoLibre recently launched a fulfillment center in Texas, which will expand the selection of products to customers in Mexico. It's an example of the potential MercadoLibre has to find ways to drive strong growth for shareholders.
The best part is that despite the stock's 1,600% return over the last 10 years, it is trading at its cheapestprice-to-sales (P/S) ratio in years. It's currently trading at a P/S multiple of 5.6 -- below its previous 10-year average of 10.
With the company's revenue still growing at high rates -- up 113% year over year last quarter (excluding currency changes) -- the stock could deliver wealth-building returns to shareholders. All the stock needs to do is continuing trading at the current P/S multiple.
A coffee stock that's just heating up
Jeremy Bowman (Dutch Bros): One of the more puzzling stock movements in recent weeks came in after Dutch Bros reported second-quarter earnings.
The fast-growing drive-thru coffee chain reported strong results with revenue jumping 30% to $325 million on same-store sales growth of 4.1%. Its margins also improved with generally accepted accounting principles (GAAP) net income more than doubling $22.2 million. It beat estimates on both the top and bottom lines.
However, in spite of the strong results and an increase in financial guidance, Dutch Bros stock plunged on the update, falling 20% on Aug. 8.
The reason for the sell-off seemed to be because the company said that new store openings for the year would now come in toward the lower end of its guidance range of 150 to 165. There wasn't any particular reason for that update, and it's nothing that would indicate long-term problems for the business. It's probably just delays in construction or permitting or other vagaries of the real industry.
Punishing the stock for modestly slower expansion this year seems excessive and illogical, especially considering the company raised its full-year revenue guidance from $1.215 billion to $1.23 billion from $1.2 billion to $1.215 billion.
The stock is still trading at a premium after the discount, but it also shows the business is misunderstood as the company was able to accelerate revenue growth even with the setback on new stores, an achievement that should be rewarded.
Dutch Bros has less than 1,000 stores currently and a long growth runway ahead of it considering that established coffee chains like Dunkin' and Starbucks have several thousand locations in the U.S.
Investors should take advantage of the sell-off and buy a piece of this fast-growing restaurant chain that's firing on all cylinders.
Don’t miss this second chance at a potentially lucrative opportunity
Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.
On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:
- Amazon: if you invested $1,000 when we doubled down in 2010, you’d have $20,001!*
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Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.
*Stock Advisor returns as of August 12, 2024
Jennifer Saibil has positions in MercadoLibre. Jeremy Bowman has positions in MercadoLibre, Nike, and Starbucks. John Ballard has positions in Dutch Bros and MercadoLibre. The Motley Fool has positions in and recommends Lululemon Athletica, MercadoLibre, Nike, and Starbucks. The Motley Fool recommends Dutch Bros and On Holding and recommends the following options: long January 2025 $47.50 calls on Nike. The Motley Fool has a disclosure policy.
