It’s been a volatile year for the major market averages, and the S&P-500 (SPY) has now corrected over 27% from its highs, suggesting we’ve seen the majority of the downside short-term.
This is based on the average recessionary bear market coming in at 34% and the S&P-500 now satisfying 80% of the average decline’s magnitude.
One of the most beaten-up areas of the market has been growth stocks, and with elevated pessimism finally increasing the likelihood of a short-term market bottom, this is the ideal time to be hunting for new ideas.
Unfortunately, not all stocks are created equal. While many growth stocks might be oversold, those still posting net losses per share and carrying high debt levels are extremely risky in a rising-rate environment.
However, for investors willing to dig through the rubble, two names stand out as extremely attractive, trading at significant discounts to fair value despite boasting strong earnings trends. In this update, we’ll look at two stocks that are solid buy-the-dip candidates:
Boot Barn (BOOT)
Boot Barn (BOOT) is a small-cap growth stock in the Retail/Apparel industry group that has enjoyed near triple-digit sales growth, increasing revenue from $180MM in fiscal Q1 2020 to $299MM in fiscal Q1 2023.
This has been accomplished by industry-leading same-store sales growth rates and continued unit growth (73 new stores opened), which is supported by the company’s continuously improving unit economics. For example, the company’s average sales per square foot have improved from a prior target of $170/square foot to over $400/square foot, increasing its payback period from three years to one year for new stores.
At the same time as sales have continued to increase at double-digit levels and it’s grown its store count to 330, the company has enjoyed growth in exclusive brand penetration, providing a significant boost to annual earnings per share.
This is because its private-label brands carry much higher margins, allowing BOOT to nearly quadruple annual EPS from FY2020 to FY2022 ($6.18 vs. $1.55). These are phenomenal growth rates, and with plans to grow its store count by over 12% this year, this growth story is still in its early innings.
Unfortunately, the stock has been crushed year-to-date (down 56%) due to the negative sentiment for the Retail Sector (XRT) and the company’s lukewarm comments in fiscal Q2 2023 guidance. Continue reading "Two Growth Stocks to Buy on Dips"
