3 Growth Stocks Wall Street May Be Sleeping, But I’m Not

Even the best growth stocks are seeing their shares pulled back. But just because their stock price is down, that doesn’t necessarily mean the stocks are down for good. Actually, Amazon lost 90% of its value in a two-year period in the early 2000s, only to become the nearly $2 trillion company it is today.

Let’s look at three good consumer growth stocks that are down, but definitely not out.

1. Elf Beauty

Down nearly 30% from its recent high, elf Beauty (NYSE: ELF) remains one of the best growth stories in the FMCG space. By using influencers and making close copies of popular prestige cosmetics, the company has been able to gain shelf space and take a huge share of the mainstream cosmetics category. In fact, it has become the #1 cosmetic brand among teenagers, according to consumer surveys.

While growth may be slowing from the breakneck pace it’s had in the past two years, elf still has a long way to go. It has made strong initial inroads with international expansion, but is still only in a few markets. The company over-indexed with the Hispanic community in the US, so Latin America could be a big future opportunity.

Meanwhile, the company recently ventured into skin care. With only a 2% market share in skin care in the US, the potential to take share in this category is a huge opportunity. Given the company’s performance in cosmetics over the past few years, there’s no reason to believe it won’t have the same success in skincare.

Trading at a price-to-earnings-growth ratio (PEG ratio) below 0.7, this growth stock is very attractively priced after its recent selloff. A PEG of less than 1x is generally considered attractive, but for a growth stock, it puts Elf squarely in the bargain bin.

2. Nike

After reporting just 1% constant-currency revenue growth for fiscal 2024, which ended in May, and leading to a single-digit sales decline in fiscal 2025, it may be best to call NIKE (NYSE: NKE) a former growth stock. After all, it hasn’t had much growth lately.

However, following the stock’s latest selloff, investors can buy the iconic brand at one of its cheapest valuations in a long time at a sub-20 P/E ratio.

But let’s not count Nike out just yet. One of the best ways for a management team to restore a stock is to give extremely conservative guidance and then sprint and jump over the bottom bar that has been set. Nike seems poised to do just that.

The story continues

One reason is that the company should see an Olympic boost, spending more around the event than at any time in the past. Nike also released a number of new products centered around the event.

Similarweb’s research team, meanwhile, showed that Nike’s strategy paid off with a huge increase in visits to its website and solid sales conversions. In China, which has been a problem, the company has seen sales of customized jerseys of the gold-medal tennis player it sponsors Zheng Qinwen rise.

Given the low valuation and expectations, now may be the time to “go for it” and add Nike to your portfolio as it appears to be returning to a growth company.

3. The Dutch Brothers

Actions of Dutch Bros (NYSE: BROS) was crushed after the cafe operator told investors that new store openings this year would come at the lower end of its guidance as it looked to optimize its real estate strategy. However, the long-term outlook for the company remains strong as it has a long track of expansion opportunities ahead.

The company’s store format is small, typically ranging from 800 square feet to 1,000 square feet, with multiple drive-thru lanes and a pick-up window. This small format allows for a relatively inexpensive construction schedule while creating a solid return, as evidenced by its average unit volume (AUV) of $2.0 million, which measures the average sales of its stores.

With just 912 locations at the end of the second quarter (612 of them company-owned), the popular coffee chain that started in Oregon is still predominantly in the western US, though it has some locations in places like Florida, Kentucky and Tennessee. This makes it a nice story of expansion from the regional to the national level.

The company is also just starting initiatives like mobile ordering, which should be a good boost to sales. This also shows that the company is still in the early days of benefiting from technological improvements that many other chains have already implemented. This creates opportunities for future growth.

Dutch Bros trades at a forward price-to-sales (P/S) multiple similar to its rival Starbucks but it should have a lot more growth given that it is still in the early days of the expansion. Because of this, I would be a buyer of the stock on the last weakness.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Nike, Starbucks and elf Beauty. The Motley Fool recommends the following options: Long January 2025 $47.50 call Nike. The Motley Fool has a disclosure policy.

3 Growth Stocks Wall Street Could be Sleeping on, But I Wasn’t was originally published by The Motley Fool