The stock market has just ended its worst year in a decade. With high inflation, rising interest rates, and talk of an imminent recession, some investors may wonder if now is the right time to invest. However, there are always growing companies worth investing in if you have available cash.
Two stocks that have the potential to deliver multibagger returns over time are Dutch Bros (NYSE: BROS) and Five Below (NASDAQ: FIVE). Here’s why I wouldn’t hesitate to add them to my portfolio right now.
Dutch Bros
Every decade, a new restaurant concept emerges that breaks the code on how to generate profits in a crowded industry. Legendary investor Peter Lynch made a career out of identifying fast-growing companies, especially in the retail and restaurant sectors while they were still small. Dutch Bros is exactly the type of stock Lynch would love.
Last year, Dutch Bros increased its revenue by nearly 50%, despite a challenging macroeconomic environment. It maintains a consistent operating culture across its locations and offers a customizable menu of hot and cold beverages that customers love, combined with friendly service. Most importantly, Dutch Bros has barely tapped into its store expansion opportunities.
The company ended 2022 with 671 stores across 14 states, but its management has set a long-term goal of 4,000 stores over the next 10 to 15 years. With a market capitalization of under $2 billion, the company’s future growth appears to be undervalued in the market. Its price-to-sales (P/S) ratio of 2.38 is less than half of Chipotle Mexican Grill’s P/S multiple.
The key factor behind Dutch Bros’ success is consistency. Maintaining the same customer experience across multiple locations is what separates world-class quick-service restaurants like McDonald’s from typical chain restaurants. In 2008, Dutch Bros transitioned to opening new locations exclusively through franchise partners who were already part of the company’s system. This was a game changer, making it more likely that Dutch Bros can eventually reach elite status as a top-tier restaurant chain.
The current pessimism in the market provides a perfect opportunity to buy Dutch Bros stock before more investors recognize its growth potential. This small-cap stock is trading far below its long-term intrinsic value.
Five Below
Five Below is another high-potential growth story. The company has steadily expanded nationwide over the past two decades. If you had invested $1,000 in its IPO in 2012, your investment would be worth over $7,500 today—and the company still has plenty of room for growth.
Five Below differentiates itself by offering a fun shopping environment where kids can buy a wide range of quality products—from candy to games and toys—for $5 or less. This strategy has proven to be highly successful, leading to tremendous revenue and earnings growth.
The company has been so successful that it has begun expanding its product offerings beyond the $5 price point under a new category called Five Beyond. This has allowed Five Below to sell higher-end products such as tech and computing accessories.
In the first three quarters of fiscal 2022, revenue increased by only 5.5% year-over-year, with same-store sales declining by 4%. However, investors shouldn’t worry about last year’s performance since high inflation won’t always be a major economic issue. There’s still plenty of room for expansion.
By October 2022, Five Below had 1,292 stores, but there are still many opportunities to open new locations in both urban and rural areas. The company’s long-term goal is to expand to over 3,500 stores, providing investors with substantial growth and profit potential.
As the company continues opening more stores and returning to strong same-store sales growth, management believes it can double both revenue and earnings by 2025. This makes it a great stock for growth investors to buy and hold for significant long-term gains.
Despite last year’s slower sales growth, Five Below’s stock has risen about 13% year-to-date. The stock trades at about 35 times this year’s earnings estimates, which may seem high, but investors should focus on its long-term track record of profitable expansion and broad consumer appeal across income levels.
Five Below is a high-quality growth stock that is well worth holding until retirement.
