One of my favorite opportunities when investing is to find long-term multibaggers that have recently experienced short-term pullbacks in their stock prices.
Three high-growth companies that currently meet these requirements are Celsius (NASDAQ: CELH), MercadoLibre (NASDAQ: MELI)and wings stop (NASDAQ: ALA). After generating share price increases ranging from 965% to 3,450% over the last decade, these multibaggers have retreated between 11% and 73% from their 52-week highs.
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Here’s why I think these short-term price declines could prove to be an opportunity for investors who think a decade ahead.
In the third quarter of 2023, Celsius, the maker of better-for-you energy drinks, more than doubled its sales compared to the prior-year quarter. In the third quarter of 2024, Celsius sales fell 31%. This dramatic slowdown (and eventual contraction) has caused the market to send the company’s shares down 73% from their recent highs.
So why do I highlight a stock with declining sales as one of my favorite growth stock opportunities right now?
First, most of this slowdown is due to how the company recognizes revenue upfront when it sells beverages through its largest distributor. pepsi. The two companies signed a distribution deal in 2022 and Pepsi stocked up on Celsius drinks, leading to incredible growth for Celsius. Now, Pepsi is resizing its inventory with smaller orders from Celsius as the two companies continue to learn how to work together.
However, despite this alarming slowdown in sales through Pepsi’s distribution channels, underlying demand for Celsius (what it actually sells to customers in retail stores) remains strong. During the third quarter, Celsius increased retail sales in dollars and unit volume by 7%. The ready-to-drink energy market as a whole has only achieved 1% growth so far in 2024.
This relative strength in retail sales helped Celsius maintain its No. 3 market share at 11.6% of its niche, up from 11.5% a year ago. These results are in stark contrast to what at first glance might seem like a terrible third quarter.
Secondly, sales to Amazon and costco increased 21% and 15%, respectively, while international revenue increased 37%. Thanks to this global growth potential and strong retail demand for Celsius beverages, it seems too early to abandon the promising growth stock that has increased 3,450% in the last 10 years.
Celsius is currently trading at a price-to-sales (P/S) ratio of 4.4, which compares very well to its peer. MonsterThe ratio of 7.4 makes it a reasonable time to accept the company’s growth prospects.
MercadoLibre, the Latin American e-commerce and fintech giant, has already become a #65 value for investors since its initial public offering in 2007, including a 1,220% appreciation in value over the past 10 years. Despite these incredible returns, the best could still be yet to come for the company: management estimates that Latin American e-commerce is lagging behind the US market by about 10 years.
During this decade, even with the more mature US market, Amazon has multiplied its sales sevenfold, highlighting the growth runway that could still lie ahead of MercadoLibre. With growth in unique buyers, active fintech users and revenue of 21%, 35% and 35%, respectively, in the third quarter, MercadoLibre continues to demonstrate that it is on its way to becoming the Amazon of Latin America.
However, operating margin and net income margin declined during the quarter, recently leading to a 13% drop in the company’s stock price. But, given that capital expenditures (capex) increased 77% compared to the third quarter of 2023, this decrease in profitability is not a criticism of MercadoLibre stock, in my opinion. Rather, it shows that management is happy to trade short-term profits for long-term cash flows by reinvesting in its operations.
By investing in its logistics network to serve Latin America’s underpenetrated e-commerce market while developing its credit portfolio to help the unbanked, the company’s focus on benefiting its users is more important. for me that 90 days of profits. MercadoLibre’s return on invested capital (ROIC) continues to rise, which has historically been shown to lead to outperformance of a stock, leaving me confident that its capex will pay dividends in the future.
MELI Return on Invested Capital data by YCharts.
MercadoLibre currently trades at 5 times sales (half its average valuation over the last decade), making the recent drop a perfect opportunity to add to this multibagger.
Five years ago, Wingstop stock was trading at about $60 per share, with a price-to-earnings (P/E) ratio of more than 100. Since then, its stock has quintupled, while its P/E ratio has dropped. has reduced slightly to 90.
The reason I point this out is that nowadays it is very easy to ignore investing in Wingstop because it seems extremely expensive. That said, the company is quickly proving to be a shining example of believing in the notion that buying a premium business at a fair price is better than buying an average company at a cheap price.
Wingstop is the largest chicken wing-focused fast-casual chain in the world, now home to nearly 2,500 stores. This has been reflected in its share price, which has appreciated 965% in the last 10 years. However, the restaurant chain has ambitions to grow to more than 4,000 locations in the US alone, as well as 3,000 more internationally.
And it is working at full speed to achieve this goal.
Wingstop added 106 new stores in the third quarter, increasing its store count by 17% compared to last year. But this was only part of the company’s astonishing growth. By increasing same-store sales by 21%, Wingstop achieved 39% sales growth overall.
However, because earnings per share only grew 32% during the quarter and missed analyst expectations, Wingstop’s share price plummeted 26% from its 52-week highs. Ultimately, I think this pullback gives investors an opportunity to own shares of one of the best compounds on the market today at a discount.
Wingstop boasts a high and growing ROIC of 38%, demonstrating its ability to continue growing through its franchise model in an immensely profitable manner. Best of all, with 90% of their new locations opened by existing franchisees, the odds of success for a new location are quite high, considering its familiarity.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Josh Kohn-Lindquist has positions at Celsius, Costco Wholesale and MercadoLibre. The Motley Fool ranks and recommends Amazon, Celsius, Costco Wholesale, MercadoLibre, and Monster Beverage. Motley Fool recommends Wingstop. The Motley Fool has a disclosure policy.
Three Unstoppable Multibaggers Up 965%-3,450% Since 2014 to Buy After Recent Pullback Originally Posted by The Motley Fool
