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Rather than fitting completely into one mold or another, most investors are attracted to a blend of stocks, with some qualifying as growth investments and others meeting value-based criteria. Today, I'm taking a closer look at a few promising companies that belong firmly on the growth side of the spectrum.
Sure, these stocks have soared higher in recent months as investor confidence in their businesses has grown. But in my view, lululemon athletica (NASDAQ: LULU), Wayfair (NYSE: W), and iRobot (NASDAQ: IRBT) have plenty of room for additional long-term gains.
Lululemon stretches higher
Lululemon, the premium-sports-apparel specialist, has been putting up some head-turning operating numbers recently. Sales growth soared past management's targets for the second time in a row last quarter, with revenue jumping 19%. The gains came from both its physical and online store channels, and they also coincided with significant profitability improvements. Gross profit margin leapt to 55% of sales, in fact, from 51% a year ago.
Image source: Getty Images.
That success tells investors a few important things about this business, beyond the fact that its industry is expanding quickly. Lululemon appears to have strong customer loyalty, for one, as evidenced by its growing market share. The retailer's latest product releases are resonating with shoppers, too, who are gladly paying full price for its yoga-themed apparel.
Lululemon can lean on those competitive advantages as it pushes toward its goal of $4 billion in annual sales by 2020. That target seems easily achievable now, and the long-term picture could be much brighter as it expands to new geographies and outside its core, female demographic.
Wayfair aims for profits
If there were any remaining doubts that shoppers would warm up to the idea of buying home furnishings online, Wayfair put them to rest recently. The e-commerce giant has expanded sales at a 40% or better rate in each of the last three quarters. Other key metrics, including repeat-order volume and average spending per order, are also trending sharply higher.
The best news for investors is that Wayfair managed to improve its gross profit margins at the same time, even though rivals have been doing all they could to try to halt its market-share momentum. The fact that they haven't succeeded implies robust competitive strengths, particularly around pricing and customer satisfaction, for the upstart.
Wayfair is still losing money overall, since management has decided to pour all available resources into expanding into international markets while building up a huge delivery and technology infrastructure in the U.S. Those costs will eventually come down, though, at which point Wayfair could begin producing impressive earnings as the leading home furnishings e-tailer.