2 Growth Stocks Down 60+% to Buy Right Now

Contrary to their name, growth stocks do not always make new highs. Shares of companies with excellent growth prospects typically sell at expensive valuations, which will cause the stock price to fall when the company experiences a hiccup in revenue or earnings growth. But as long as the business continues to grow, investors can take advantage of Wall Street’s focus on short-term results and position their money for a windfall down the road.

Here are two strong emerging brands serving huge multi-billion dollar markets that are safe bets for the long term.

1. Celsius Holdings

Celsius Holdings (NASDAQ: CELH) is a rising star in the energy drink category — a market expected to reach $240 billion in annual sales by 2027, according to Statista. It has seen strong growth in recent years. But the stock is now down 61% from its previous peak, creating a great buying opportunity.

The stock’s collapse this year might seem odd as the company continues to report strong growth. Revenue rose 23% year over year in the second quarter, but that’s well off the triple-digit growth pace it was reporting just a year ago.

The weak consumer spending environment is catching up with celsius, but most noteworthy is that the company’s Q2 sales growth contributed nearly half to the growth of the entire energy drink category. As this performance shows, Celsius’ focus on making energy drinks without artificial flavors and sugar is resonating with customers.

The stock recently traded at a forward price-to-earnings ratio of 36, down from more than 80 earlier this year. The stock price may hit new lows in the short term, but it will peak and resume the pursuit of long-term business growth.

Celsius sees green shoots in e-commerce, where sales through Amazon grew 41% year-over-year, making Celsius the #1 energy drink brand during Amazon’s Prime Day in July.

Another positive sign for investors is that Celsius continues to raise costs to grow profits at high rates. Earnings per share rose 77% in Q2 year over year. If Celsius continues to grow earnings at high double-digit rates, the stock could trade significantly higher in a few years.

2. Chewed

People love their pets and chew (NYSE: CHWY) becomes the Amazon of online pet stores. The pet care industry is a $144 billion market that Chewy is targeting. That’s a huge opportunity for a company with just over $11 billion in annual sales.

The stock is down 80% from its previous high for the same reason Celsius is — slowing growth. Chewy’s annual sales growth has fallen from 25% in fiscal 2021 to just 7% in the past year.

The story continues

Lower growth has taken stock valuations to more reasonable levels which should set the stage for a major rebound. The price-to-sales ratio fell 81% from about 4.5 three years ago to 0.9.

At these levels, the stock looks like a bargain. The stock price has recovered 65% from recent lows and may have room to run as Chewy keeps sales growth steady in the high single digits and starts to build higher profitability.

Chewy continues to invest in areas that increase margins. Its adjusted earnings before taxes, interest, depreciation and amortization (EBITDA) rose 47% year over year in the fiscal first quarter to $163 million. This reflects Chewy’s investment in high-margin product lines such as health services and sponsored advertising.

They are currently testing Chewy Plus, a new membership program that offers free shipping and other benefits. It’s a move to lock in loyal customers with value-added services that boost sales — and more importantly, profits.

With these initiatives coming to fruition ahead of a huge opportunity, the stock is a great buy at these lower share prices and should deliver excellent returns over the coming years.

Should you invest $1,000 in Celsius right now?

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Celsius, and Chewy. The Motley Fool has a disclosure policy.

2 Growth Stocks Down Over 60% to Buy Right Now was originally published by The Motley Fool