Stocks began to rally late last week. If the gains continue, you’ll want to find the right investments to drive the market higher. Many stocks are trading at surprisingly low valuations, making them prime candidates to lead the surge.
Crocodile (CROX 0.95%), camping world (CWH 1.12%)and Lovebag (TO LIKE 1.65%) are very cheap stocks. Let’s see why they have enough growth catalysts to buy as the market recovers.
There’s a lot of air going around Crocs these days, and I’m not talking about the all-weather shoes that are the Swiss cheese of the footwear industry. Shares of rose earlier this month after Crocs reported better-than-expected financial results. Revenue soared 57% to nearly $1 billion in the third quarter, ahead of the 47% to 52% it was targeting three months ago and the 51% increase analysts were aiming for.
The faster-growing acquisition of Heydude, which closed in February, naturally rounds out the year-over-year comparisons, but organic growth for the Crocs brand still increased by 14% (or 20% at constant exchange rate). The pros on Wall Street obviously factored the growth gained into their forecasts. Adjusted earnings per share of $2.97 beat the $2.61 expected by analysts.
More importantly, Crocs boosted its revenue forecast and bottomed out its earnings outlook. Reported growth will slow when we complete the Heydude deal early next year, but you gotta love Crocs’ chances of standing out in a sea of ho-hum shoe inventory. Crocs has defied the bearish blows that its flagship shoes are a fad, and it has succeeded for the past two decades. Now he has an even faster growing line of shoe products. Even after bouncing back this month, you can still buy Crocs for just 9.2 times the midpoint of this year’s improved earnings forecast.
2. The camping world
If you’re looking for a little investment income in your rally games, you might want to hitch a ride on Camping World. The leading recreational vehicle (RV) retailer posted an 8.6% return. As you can probably imagine, the payout is so high because Camping World is so profitable.
Interest in motorhomes has cooled since the early days of the COVID-19 crisis, when people transferred their 2020 summer holiday money into installments for motorhomes and towable caravans . It was the safe way to get around, but let’s not forget the lure of the freeway and the great outdoors. Hybrid workspaces are here to stay, and it will give people more freedom to hop on their RV and find connectivity to get their work done.
Revenue fell 3% in Camping World’s latest report, and adjusted earnings were hit even harder. Camping World trades at an earnings multiple of just 6.3. Analysts predict it will earn 7.7 times earnings next year, given the tough climate for big-ticket items, but that may improve significantly if the economy recovers quickly in 2023.
People can’t get enough of Lovesac’s merchandise. Its high-end bean bag chairs — some big enough for an entire family — and high-tech modular sectionals that can even accommodate home theater speakers are all the rage. Sales increased in 2020 and 2021 as people spent more time at home. Many furniture and housewares specialists faltered in 2022, but Lovesac continues to sprint.
Net sales soared 45% in Lovesac’s latest quarter, well ahead of the 25% to 30% it publicly claimed earlier. Net income and margins have contracted on the same constraints that plague other companies, but Lovesac has exceeded Wall Street profit targets with ease and consistency for more than a year.
We are now in 17 consecutive quarters where net sales have increased by at least 25% compared to the comparable report of the previous year. It warned at the time that growth was slowing and forecast just a 15% year-on-year increase for its next report. It would be the end of a streak, but we’ve already seen Lovesac being conservative with his crystal ball.
You get Lovesac growth at a great price. The stock returns 10.5 times its projected earnings this year, but only 6.4 times next year’s multiple. Like its namesake chairs, the stock is roomier than you might think.
Rick Munarriz holds positions at Camping World Holdings, Crocs and The Lovesac Company. The Motley Fool recommends Camping World Holdings, Crocs and The Lovesac Company and recommends the following options: short December 2022 $24 puts on Camping World Holdings. The Motley Fool has a disclosure policy.
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