3 Growth Stocks to Buy on the Decline: August 2024

The market has been in pullback mode since mid-July, with the correction accelerating as the yen trades. Despite a bounce back from the August 5 lows, the S&P 500 is still down more than 5% from its highs, while most growth stocks have corrected by double-digit percentages. As this correction unfolds, it’s time to focus on growth stocks to buy on the dip.

A correction often presents buying opportunities in top growth ideas. Even though there have been signs of an economic slowdown, these top growth stocks have very solid fundamentals. Indeed, their quarterly reports highlighted their strong operating momentum while crushing analysts’ estimates. Each achieved industry-leading growth in their category, delivering revenue increases of more than 40%.

Given their strong fundamental momentum and decent pullbacks, it’s time to consider these bullish stocks to buy on the dip. Their managements are optimistic about the growth path, which means there could be more upside.

Elf Beauty (ELF)

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After a 14% decline after revenue, elf Beauty (NYSE:ELF) are among the top growth stocks to buy on the decline. Indeed, the selloff was an odd reaction to a stellar quarter. The cosmetics and beauty brand beat earnings estimates and raised guidance.

Exploring the numbers highlights why this industry-leading growth star has several advantages. In the first quarter of fiscal 2025, revenue rose 50% year-over-year to $324 million, beating estimates by $19 million. Impressively, it also gained 260 basis points in market share, highlighting the strength of its brand. This was the 22nd consecutive quarter of market share growth and net sales growth.

Based on management comments on the earnings call, elf Beauty outperforms the category. For example, in color cosmetics, it increased by 26%, while the category decreased by 1%. Additionally, they see more growth opportunities in retail channels. They expect to replicate in other retail chains the success they achieved with the long-term partner Aim (NYSE:TGT), where elf Beauty has a 20% market share.

Against this background, management expects net sales between $1.28 billion and $1.3 billion, up from $1.23 billion to $1.25 billion previously. Furthermore, they expect adjusted EPS per share of $3.36 to $3.41, which means the stock is trading at 47 times forward EPS. This is a reduction given that revenue guidance calls for net sales growth of at least 20% in FY2025.

AppLovin (APP)

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AppLovin (NASDAQ:app) is a performance-based advertising platform for game marketers. Once again, the company has shown impressive growth and cost discipline to deliver amazing results in Q2 2024. Its technology is only getting better, driving advertiser spend on the platform.

Indeed, the platform harnesses the power of AI to improve its models. In this way, the platform becomes more precise, allowing for better ad targeting. That’s why the company grew revenue by 5% sequentially and 44% annually to $1.08 billion in Q2 2024.

In addition to top-line growth, the company showed massive operating leverage. Adjusted EBITDA margins improved from 44% in Q2 2023 to 56%. Due to this margin improvement, Adjusted EBITDA increased 80% year-over-year to $601 million. Net income margins also increased from 11% to 29%, resulting in net income of $310 million, an annual growth rate of 286%.

Particular strength was evident in the software platforms count, where revenue was up 75% year over year to $711 million. Additionally, management issued guidance calling for revenue of $1.115 billion to $1.135 billion in Q3, representing growth of at least 29%.

With these impressive results, AppLovin is one of the best growth stocks to buy on the decline as it has fallen over 10% over the past three months. Furthermore, in terms of valuation, it is undervalued at a forward non-GAAP price-earnings-growth ratio of 0.5.

Duolingo (DUOL)

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This language learning app has pulled back in recent months, hitting the growth stocks to buy on the decline list. The stock is down 17% year-to-date on fears of AI disruption in education technology. However, based on recent earnings, Duolingo (NASDAQ:Duola) is as strong as ever.

From user growth to profitability, its Q2 2024 revenue report was perfect. Daily active users grew 59% to 34.1 million, while monthly active users crossed the 100 million mark. Paying subscribers have also grown to 8 million, an impressive feat considering the app had just 2 million subscribers at its IPO three years ago.

Due to the increase in users, revenue increased by 41% compared to last year. Adjusted EBITDA more than doubled, rising from $20.9 million in the prior-year quarter to $48.1 million. This industry-leading growth rate makes Duolingo among the best growth stocks to buy on the decline.

Finally, management sees AI as an opportunity, not a threat. The company has launched Duolingo Max, its premium tier with AI-enabled features, in 27 countries. Moreover, it is expected to be available in most countries by the end of the year. Max began impacting the financial statements at the end of the second quarter, and management believes it will contribute to growth going forward.

At the time of publication, Charles Munyi had a long position in ELF, but did not hold (either directly or indirectly) any positions in any other securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

At the time of publication, the responsible editor had (either directly or indirectly) no position in the securities mentioned in this article.