After years of outperformance, growth stocks have hit a wall in 2022. Growth stocks with high price-to-earnings multiples or with no earnings have been punished by the market as rising interest rates and soaring inflation have made them less attractive to investors. But over the long run, companies that are growing sales and earnings are still a great place to invest.
The steep year-to-date declines create a compelling buying opportunity for long-term investors interested in establishing a position in some of the market’s best growth stocks. And you don’t need a small fortune to get started. If you have $3,000, here are three different growth stocks that you can double down on right now.
While shares of MercadoLibre (MELI 5.25%) are down about 48% from their 52-week high, the business itself keeps humming along and firing on all cylinders. MercadoLibre is South America’s largest e-commerce platform, and home to a booming fintech business that includes payments solution Mercado Pago and credit offering Mercado Credito.
During the most recent quarter, MercadoLibre reported revenue growth of 57% year over year. This growth is particularly impressive because MercadoLibre is not a small company or coming off of a low base, lapping a small amount of revenue — revenue jumped from $1.7 billion to just under $2.6 billion. Total fintech revenue grew even faster than overall revenue, more than doubling from $561 million during the second quarter of 2021 to $1.19 billion during the second quarter of 2022. This indicates that the company’s payments and credit offerings are gaining major traction on the ground in Latin America.
MercadoLibre has achieved incredible success thus far. But with e-commerce still less common in Latin America than in the U.S., and most transactions still completed in cash, the company could still be in the early innings of its growth story. As internet penetration and e-commerce adoption across Latin America continue to grow, MercadoLibre should continue to have a long growth runway ahead of it.
2. Floor & Decor
Much like MercadoLibre, flooring retailer Floor & Decor (FND 2.97%) is doing pretty much everything right, but because the market is worried about how inflation will affect housing demand, shares are down 41% from their 52-week high. Floor & Decor has tuned out its stock price’s slide and continues to post phenomenal results. During the second quarter of 2022, it increased sales by 26.7%, which is great growth in and of itself but even more impressive since it came amid surging inflation and declining home sales.
These recent results aren’t an outlier — Floor & Decor has been a strong performer for years now. Between 2017 and 2021, the Atlanta-based company grew revenue at a 25% compound annual growth rate (CAGR), from $1.38 billion to $3.43 billion. At the same time, it has grown adjusted EBITDA (earnings before interest, taxes, debt, and amortization) at an even more impressive 32% CAGR, from $159 million in 2017 to $485 million in 2021.
The company is also quickly building out its store count. In 2017, there were 83 Floor & Decor locations and by the end of 2021, the store count had nearly doubled to 160. But Floor & Decor isn’t stopping there — the company says that it sees plenty of “white space” ahead and long-term potential for 500 locations, more than three times the current footprint.
Lululemon (LULU 0.83%), the maker of high-end athleisure wear, has been a monster growth stock for a long time now. Since 2018, the company has grown revenue at a 24% CAGR, from $2.65 billion to about $6.25 billion, while growing earnings EBIT at an even more impressive 29%.
While Lululemon has an impressive multi-year track record for growth, it could just be getting started. Earlier this year, the company announced an ambitious five-year plan to double revenue by 2027. Key components of the plan include doubling revenue in men’s apparel, expanding internationally, and gaining traction in new products like footwear. Best of all, management wants to grow earnings per share at a faster rate than revenue growth, meaning that it will grow profitably.
The goal is certainly lofty but based on Lululemon’s track record so far, I am not betting against it. A few years ago, I would have been skeptical that it would be successful in entering the men’s apparel market, and now I own multiple pairs of Lululemon shorts and a jacket.
Despite Lululemon’s strong fundamental performance over the past few years, shares are down nearly 30% from their 52-week high amid the broader growth stock sell-off, giving investors a good entry point to initiate an investment.
A lot of great stocks have been caught up in the market’s sell-off this year. This gives investors the opportunity to take a swing at some great companies that have stellar growth track records over the last few years, and even more growth ahead. Investing now when the market is fearful should be a winning move over the long term.