Investors can look at many factors before buying or selling a stock. Valuations, financials, and industry news are some of the information we can consider before investing in corporations.
Some investors prioritize momentum in their investing decisions. The logic is that if a stock has been going up for quite a while, the corporation is probably doing a few things right that can lead to future gains. While this logic has some weaknesses, investors can conduct deeper analyses to determine if momentum is justified.
These three growth stocks have been riding momentum for a while and have the fundamentals to suggest continued success.
Elf Beauty (ELF)
Elf Beauty (NYSE:ELF) offers beauty and cosmetics products that use cruelty-free ingredients. The mid-cap stock has been a magnet for momentum investors. Shares have almost tripled over the past year and are up by 1,752% over the past five years.
Stocks with this type of momentum often attract exuberant excitement and intense fears that this time will be different. Despite the rally, Elf Beauty is still reasonably valued with a 53-forward P/E ratio.
Revenue and earnings accelerations make the cosmetics company appealing. The firm reported 76% year-over-year (YOY) revenue growth and 184% YOY net income growth in Q2 of fiscal 2024.
Recently, Elf Beauty suffered a 4% pullback on January 18th. Those types of downward movements can cause investors to panic, but they actually present a good opportunity to accumulate shares.
These downtrends can happen even if there isn’t any news. In Elf Beauty’s case, the news was moving out of the S&P SmallCap 600 Index and going into the S&P MidCap 400 Index instead. More funds track the former than the latter which resulted in an ELF stock losing value. That small drop has nothing to do with the underlying business and presents a buying opportunity.
Celsius Holdings (CELH)
Although Celsius Holdings (NASDAQ:CELH) stock has been flat since mid-August, the company has gained 83% over the past year. The sports beverage company’s 4,784% gain over the past five years demonstrates how much investors have accumulated this stock.
The firm is barely a large-cap stock with a $14 billion market cap. However, shares can soar much higher. Growth has been a common theme for the corporation which more than doubled its revenue and net income in the third quarter. International sales are a minuscule part of the company’s total revenue and are poised to ramp up in the coming quarters.
Celsius Holdings has a lot of room to run if it can tap into international markets. The company’s product is flying off the shelves in North America. CELH has a 57 forward P/E ratio which can get easier to justify when international sales start to come in.
Analysts feel optimistic about the company’s long-term path. The average price target from 14 analysts is $72.25 per share, which implies an upside above 20%. The highest price target is $83.33 and even the lowest price target of $64 presents some upside.
Valuation concerns may have contributed to the stock trading sideways since mid-August. However, those concerns should fade in 2024 as the company reports strong earnings. That scenario would help the stock generate momentum and reward patient investors.
Chipotle (CMG)
Chipotle (NYSE:CMG) is another company in the food industry. The corporation offers healthier fast food options than most restaurants and has rapidly expanded. The company has over 3,300 locations throughout the U.S.
CMG stock has delivered compelling returns for long-term investors. Shares are up by 54% over the past year and have gained 327% over the past five years. That type of momentum would make many investors happy, but can the stock deliver for new investors?
That’s the question every momentum investor has to ask themselves before accumulating shares. Chipotle has demonstrated many promising signs for potential investors who are on the fence. The firm achieved 11.3% YOY revenue growth and 21.8% YOY net income growth in the third quarter.
Shares trade at a 43-forward P/E ratio. It’s more expensive than other fast food restaurants, but Chipotle trades at a premium for a reason. The company is generating high growth rates and looks poised to expand its market share in the years ahead.
On this date of publication, Marc Guberti held long positions in ELF and CELH. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.