The stock market is sitting near all-time highs with just a few trading days left in 2021. But many growth stocks have been left out of that rally, especially in the year’s final weeks. That slump is creating some attractive buying opportunities for investors who are willing to endure some volatility in exchange for owning stocks with unusually strong sales and earnings potential.
Athleisure is a global business
By the end of the year, Lululemon will have nearly doubled its annual sales footprint since 2018. But there’s more room for this apparel specialist to grow beyond its current $6.3 billion revenue pace. The company is finding strong demand in categories like menswear and outerwear, and it has only started tapping the potential in markets like China.
Some investors remain concerned right now because of the impact a new COVID-19 variant might have on short-term sales trends. The shares are down more than 20% from their highs earlier this year.
Yet, the company’s finances are stellar. Gross profit margin has been climbing steadily for several years despite soaring expenses in 2021. The current 57% rate is roughly 10 percentage points higher than Nike‘s.
Sure, Lululemon has a long way to go before it approaches the $40 billion in global revenue that Nike enjoys. But its strong performance through the pandemic means it should reach well in advance many of the five-year goals that management set in 2019. These include doubling the size of the menswear business and quadrupling the international segment.
It could be a lucrative ride for shareholders who sign up to participate on this journey.
Navigating toward success
Garmin also isn’t getting the credit it deserves from Wall Street. The tech giant has used its strength in innovation to build an impressive product portfolio that spans from consumer electronics like fitness trackers and smartwatches to higher-end navigation platforms found in aircraft and boats.
That diverse offering has helped it steadily grow sales over the past five years even as some niches, such as automotive GPS devices, declined. Revenue has risen 27% so far in 2021 and will likely cross $5 billion in 2021, up from $3.3 billion in 2018.
Yet, just as with Lululemon, the stock price hasn’t followed the company’s improving trajectory. In fact, the shares are down 25% from their highs in late August thanks to Wall Street’s move away from high-growth businesses toward the relative safety of bigger, more reliable profit generators.
Still, Garmin’s earnings potential remains strong, at least in part due to a high profit margin on its premium tech products as well as its growing aviation and marine segment. Earnings this year are set to reach $5.60 per share, according to management’s latest forecast, compared to $5.14 last year.
Meanwhile, the operating margin is expected to slip just slightly, to 24% of sales from 25%, as the company spends cash to boost its manufacturing ability. That production upgrade will allow Garmin to enter 2022 with a far higher capacity.
There’s no telling how much longer the current investor sentiment will pressure these stocks. But purchasing shares of strong businesses like Garmin and Lululemon tends to work out well for growth-focused investors. It’s a nice bonus to be able to buy these stocks at a discount, too.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.