Certainly one of my favorite opportunities when investing is finding long-term multibaggers which have recently experienced short-term pullbacks of their share prices.
Three high-growth businesses currently meeting these requirements are Celsius (NASDAQ: CELH), MercadoLibre (NASDAQ: MELI), and Wingstop (NASDAQ: WING). After delivering share price increases starting from 965% to three,450% during the last decade, these multibaggers have pulled back between 11% and 73% from their 52-week highs.
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Here’s why I think these short-term drops in price could prove to be a chance for investors pondering a decade ahead.
Within the third quarter of 2023, better-for-you energy drink maker Celsius greater than doubled its sales in comparison with the previous 12 months’s quarter. Fast-forward to Q3 2024, and Celsius saw sales drop 31%. This dramatic slowdown (and eventual shrinking) has caused the market to send the corporate’s shares down 73% from its recent highs.
So why am I highlighting a stock with declining sales as one in all my favorite growth stock opportunities straight away?
First, most of this slowdown results from how the corporate recognizes revenue upfront when it sells drinks through its largest distributor, Pepsi. The 2 firms signed a distribution deal in 2022, and Pepsi loaded up on Celsius drinks, prompting incredible growth from Celsius. Now, Pepsi is rightsizing its inventory with smaller orders from Celsius because the two businesses proceed to learn how one can work together.
Nevertheless, despite this alarming-looking slowdown in sales via Pepsi’s distribution channels, Celsius’ underlying demand (what it actually sells to customers at retail locations) stays robust. During Q3, Celsius grew retail dollar and unit volume sales by 7%. The ready-to-drink energy market as a complete has only eked out 1% growth to date in 2024.
This relative retail sales strength helped Celsius maintain its No. 3 market share at 11.6% of its area of interest, in comparison with 11.5% a 12 months ago. These results stand in stark contrast to what might otherwise seem like an awful Q3 at first glance.
Second, sales to Amazon and Costco were up 21% and 15%, respectively, while international revenue jumped 37%. Because of this global growth potential and robust retail demand for Celsius drinks, it seems far too early to offer up the promising growth stock which has risen 3,450% during the last 10 years.
Celsius currently trades at a price-to-sales (P/S) ratio of 4.4 — which compares nicely to its peer Monster‘s ratio of seven.4 — making it an inexpensive time to purchase into the corporate’s growth prospects.
Latin American e-commerce and fintech juggernaut MercadoLibre has already develop into a 65-bagger for investors since its initial public offering in 2007, including a 1,220% appreciation in value during the last 10 years. Despite these incredible returns, the most effective could still be ahead for the corporate — management estimates that Latin American e-commerce lags the U.S. market by roughly 10 years.
Over this decade, even with the U.S. market being more mature, Amazon has grown its sales sevenfold, highlighting the expansion runway that would still be ahead of MercadoLibre. Growing unique buyers, lively fintech users, and revenue by 21%, 35%, and 35%, respectively, in Q3, MercadoLibre continues to prove that it’s on its method to becoming the Amazon of Latin America.
Operating margin and net income margin declined in the course of the quarter, nonetheless, prompting the corporate’s 13% pullback in share price recently. But, with capital expenditures (capex) rising 77% in comparison with Q3 2023, this declining profitability is not an indictment on MercadoLibre stock, in my view. As a substitute, it shows that management is completely satisfied to trade short-term profits for long-term money flows by reinvesting in its operations.
Investing in its logistics network to serve the underpenetrated LatAm e-commerce market while constructing out its credit portfolio to assist the underbanked, the corporate’s concentrate on benefiting its users is more necessary to me than 90 days’ value of profits. MercadoLibre’s return on invested capital (ROIC) continues to climb — which has historically proven to steer to a stock’s outperformance — leaving me confident that its capex can pay dividends further down the road.
MercadoLibre currently trades at 5 times sales — half its average valuation across the last decade — making the recent dip an ideal opportunity so as to add to this multibagger.
Five years ago, Wingstop shares traded for about $60 per share, with a price-to-earnings (P/E) ratio of over 100. Its stock has since quintupled, while its P/E ratio has shrunk barely to 90.
The rationale I point this out is that it is vitally easy to disregard investing in Wingstop today since it appears egregiously expensive. That said, the corporate is quickly proving to be a shining example of believing within the notion that purchasing a premium business at a good price is best than buying a median company at an affordable price.
Wingstop is the biggest chicken wings-focused fast-casual chain on the earth and is now home to almost 2,500 stores. That has reflected in its stock price, which has appreciated 965% during the last 10 years. Nevertheless, the restaurant chain has ambitions to grow to greater than 4,000 locations within the U.S. alone, in addition to a further 3,000 more internationally.
And it’s firing on all cylinders to get to this goal.
Wingstop added 106 recent stores in Q3, growing its store count by 17% in comparison with last 12 months. But this was only a portion of the corporate’s staggering growth. Increasing same-store sales by 21%, Wingstop delivered sales growth of 39% overall.
Nevertheless, because earnings per share only grew by 32% in the course of the quarter and missed analysts’ expectations, Wingstop’s share price plummeted 26% from its 52-week highs. Ultimately, I think this pullback gives investors a chance to select up shares of among the finest compounders available on the market today at a reduction.
Wingstop is home to a high and rising ROIC of 38%, demonstrating its ability to proceed growing through its franchise model in an immensely profitable manner. Best yet, with 90% of its recent locations opened by existing franchisees, the percentages of a recent location’s success are pretty high, considering their familiarity.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Idiot’s board of directors. Josh Kohn-Lindquist has positions in Celsius, Costco Wholesale, and MercadoLibre. The Motley Idiot has positions in and recommends Amazon, Celsius, Costco Wholesale, MercadoLibre, and Monster Beverage. The Motley Idiot recommends Wingstop. The Motley Idiot has a disclosure policy.