Some stocks can fluctuate wildly in the short term, and that’s why many long-term investors like buy falling stocks. Investors know that it is the company’s performance over many years that creates wealth, so buying the stock at a price lower than its previous highs can offer more attractive value to improve returns.
With that in mind, let’s take a look at why the following Motley Fool contributors think now is a good time to buy. Year (NASDAQ:ROKU), Lululemon Athletica (NASDAQ:LULU)And Securities in Celsius securities (NASDAQ:CELH).
Don’t give up on this streaming winner
Jennifer Saibil (Year): Roku continues to generate higher sales and improve profits, and its shares continue to decline. This is down 35% this year and 87% from 2021 highs.
Let’s talk a little about what’s going on. Roku, as many readers know, makes streaming devices. It is the number one streaming company in the United States in terms of streaming hours, and it is also the best-selling streaming device brand in the United States. However, its main source of sales is its advertising partnerships. It has had its ups and downs over the past few years, booming with the start of the pandemic and then declining afterward. Sales growth has been rapid, but it remains very much stuck in the land of the unprofitable.
Investors have become very depressed about Roku this year, despite its growth, and it seems like it’s a bit much. Total revenue increased by 19% compared to last year. Streaming households, its new term for accounts, grew 14% year-over-year, while total streaming hours increased 23%. Average revenue per user remained stable year over year, which is better than some of the declines the company reported.
Profitability, or lack thereof, is improving. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) fell from a loss of $69 million last year to $41 million this year in the first quarter, and net loss improved by $194 million. dollars to $51 million. Free cash flow for the trailing 12 months was positive and increased for the third consecutive quarter to $427 million.
What triggered the landslide was Walmartthe announcement in February of the acquisition of competitor Roku Vizio. Even though Vizio doesn’t appear to be a threat to Roku, Walmart’s support has spooked investors. This news comes on the heels of a lukewarm fourth-quarter earnings report, and Roku stock continued to fall.
The good news for investors is that this is a great opportunity to buy shares of a great company that is going down. Roku stock trades at 2.3 times trailing 12-month earnings, a cheap valuation for a stock with its potential.
Shop the sale on Lululemon
John Ballard (Lululemon Athletica): Lululemon has seen incredible growth over the past few decades. The company’s annual revenue has grown at an annualized rate of 20% over the past 10 years, with annualized growth accelerating to 24% over the past two years. The stock followed suit, delivering a cumulative return of nearly 700%. For anyone who has followed the sportswear industry, Lululemon’s growth comes as no surprise, as the trend toward athleisure has driven very consistent sales growth across the industry for years.
The stock recently fell after the company’s quarterly update in March. Lululemon reported lower-than-expected revenue growth for the fiscal fourth quarter, and the guidance didn’t make investors feel any better. Management expects full-year revenue growth to be between 11% and 12% year-over-year. That’s not the level of growth investors expect from Lululemon.
Here are two important reasons to buy the dip:
Lululemon’s weaker growth reflects an industry-wide slowdown. In fact, Lululemon’s forecast for double-digit revenue growth is head and shoulders above the world’s largest brands forecasting single-digit sales growth this year. NikeFiscal 2024 revenue is expected to grow just 1% year over year.
Lululemon stock is now trading at its most attractive valuation in years. The shares are currently trading at a price-to-earnings ratio of 28. The stock briefly traded at this level most recently in March 2020, and before then in 2017.
Overall, nothing has changed the industry’s long-term growth trajectory. Long-term trends driving demand for activewear, including active lifestyles and leisure, will continue to fuel Lululemon’s growth, as it has over the past 20 years.
This doesn’t mean the stock can’t make new lows in the near term, but I believe investors who buy today and hold over the next decade will benefit from their investment.
This growth story is far from over
Jeremy Bowman (Celsius Holdings): Celsius Holdings, the energy drink maker, is one of the market’s best-performing stocks over the past four years, up about 5,000%. The brand has grown from a niche player in the beverage industry, popular in gyms and health clubs, to a mainstream beverage brand, sold everywhere from Costco to convenience stores. And it has seen triple-digit revenue growth in several of its quarters.
However, more recently, Celsius stock has pulled back from its March high, down about 25% since then. There was no major catalyst for this decline. Rather, it appears to be a combination of concerns about its valuation and changes in the macroeconomic outlook, as persistent inflation has led investors to suspect that the Fed would not cut interest rates this year.
For long-term investors, Celsius’ decline appears to offer a solid entry point. The company just released its first quarter results, so we have a clear picture of the business. Shares fell slightly as Celsius missed revenue estimates, with reported revenue up 37%, but that was mainly due to an inventory adjustment by PepsiCothe distribution partner responsible for purchasing 62% of its product.
Underlying growth remained strong. Celsius sales in the key U.S. chain store channel jumped 72%, according to data from Circana, an industry research firm, showing the brand remains red-hot. Better yet, Celsius’ margin jumped during the quarter as the company also controlled inventory and benefited from lower input and material costs. As a result, earnings per share more than doubled from $0.13 to $0.27.
Celsius still has plenty of room for growth, including in international markets, which represent only a small fraction of sales today, and in new channels like restaurants and foodservice, where it is just getting started to gain visibility thanks to the placement of Pepsi.
As Celsius gains market share and expands the energy drink category, it’s easy to imagine the drink stock growing to approach the size of Monster drink, whose market capitalization is currently more than triple that of Celsius. Investors can get a good entry point by taking advantage of the recent selloff and buying the stock today.
Should you invest $1,000 in Roku right now?
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Jennifer Saibil has no position in any of the stocks mentioned. Jeremy Bowman holds positions in Nike and Roku. John Ballard has no position in any of the stocks mentioned. The Motley Fool posts and recommends Celsius, Costco Wholesale, Lululemon Athletica, Monster Beverage, Nike, Roku and Walmart. The Motley Fool recommends the following options: Long January 2025 $47.50 calls on Nike. The Mad Motley has a disclosure policy.
3 Incredible Stocks You’ll Regret Not Buying During a Downturn was originally published by The Motley Fool
