One of my favorite opportunities when investing is finding long-term multibaggers that have recently experienced short-term pullbacks in their share prices.
Three high-growth businesses currently meeting these requirements are Celsius (NASDAQ: CELH), MercadoLibre (NASDAQ: MELI), and Wingstop (NASDAQ: WING). After delivering share price increases ranging from 965% to 3,450% over the last decade, these multibaggers have pulled back between 11% and 73% from their 52-week highs.
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Here’s why I believe these short-term drops in price could prove to be an opportunity for investors thinking a decade ahead.
In the third quarter of 2023, better-for-you energy drink maker Celsius more than doubled its sales compared to the previous year’s quarter. Fast-forward to Q3 2024, and Celsius saw sales drop 31%. This dramatic slowdown (and eventual shrinking) has caused the market to send the company’s shares down 73% from its recent highs.
So why am I highlighting a stock with declining sales as one of my favorite growth stock opportunities right now?
First, most of this slowdown results from how the company recognizes revenue upfront when it sells drinks through its largest distributor, Pepsi. The two companies signed a distribution deal in 2022, and Pepsi loaded up on Celsius drinks, prompting incredible growth from Celsius. Now, Pepsi is rightsizing its inventory with smaller orders from Celsius as the two businesses continue to learn how to work together.
However, despite this alarming-looking slowdown in sales via Pepsi’s distribution channels, Celsius’ underlying demand (what it actually sells to customers at retail locations) remains robust. During Q3, Celsius grew retail dollar and unit volume sales by 7%. The ready-to-drink energy market as a whole has only eked out 1% growth so far in 2024.
This relative retail sales strength helped Celsius maintain its No. 3 market share at 11.6% of its niche, compared to 11.5% a year ago. These results stand in stark contrast to what might otherwise look like an awful Q3 at first glance.
Second, sales to Amazon and Costco were up 21% and 15%, respectively, while international revenue jumped 37%. Thanks to this global growth potential and strong retail demand for Celsius drinks, it seems far too early to give up the promising growth stock which has risen 3,450% over the last 10 years.
Celsius currently trades at a price-to-sales (P/S) ratio of 4.4 — which compares nicely to its peer Monster‘s ratio of 7.4 — making it a reasonable time to buy into the company’s growth prospects.
Latin American e-commerce and fintech juggernaut MercadoLibre has already become a 65-bagger for investors since its initial public offering in 2007, including a 1,220% appreciation in value over the last 10 years. Despite these incredible returns, the best could still be ahead for the company — management estimates that Latin American e-commerce lags the U.S. market by roughly 10 years.
Over this decade, even with the U.S. market being more mature, Amazon has grown its sales sevenfold, highlighting the growth runway that could still be ahead of MercadoLibre. Growing unique buyers, active fintech users, and revenue by 21%, 35%, and 35%, respectively, in Q3, MercadoLibre continues to prove that it is on its way to becoming the Amazon of Latin America.
Operating margin and net income margin declined during the quarter, however, prompting the company’s 13% pullback in share price recently. But, with capital expenditures (capex) rising 77% compared to Q3 2023, this declining profitability isn’t an indictment on MercadoLibre stock, in my opinion. Instead, it shows that management is happy to trade short-term profits for long-term cash flows by reinvesting in its operations.
Investing in its logistics network to serve the underpenetrated LatAm e-commerce market while building out its credit portfolio to help the underbanked, the company’s focus on benefiting its users is more important to me than 90 days’ worth of profits. MercadoLibre’s return on invested capital (ROIC) continues to climb — which has historically proven to lead to a stock’s outperformance — leaving me confident that its capex will pay dividends further down the road.
MercadoLibre currently trades at 5 times sales — half its average valuation across the last decade — making the recent dip a perfect opportunity to add to this multibagger.
Five years ago, Wingstop shares traded for about $60 per share, with a price-to-earnings (P/E) ratio of over 100. Its stock has since quintupled, while its P/E ratio has shrunk slightly to 90.
The reason I point this out is that it is very easy to ignore investing in Wingstop today because it appears egregiously expensive. That said, the company is quickly proving to be a shining example of believing in the notion that buying a premium business at a fair price is better than buying an average company at a cheap price.
Wingstop is the largest chicken wings-focused fast-casual chain in the world and is now home to nearly 2,500 stores. That has reflected in its stock price, which has appreciated 965% over the last 10 years. However, the restaurant chain has ambitions to grow to more than 4,000 locations in the U.S. alone, as well as an additional 3,000 more internationally.
And it is firing on all cylinders to get to this goal.
Wingstop added 106 new stores in Q3, growing its store count by 17% compared to last year. But this was only a portion of the company’s staggering growth. Increasing same-store sales by 21%, Wingstop delivered sales growth of 39% overall.
However, because earnings per share only grew by 32% during the quarter and missed analysts’ expectations, Wingstop’s share price plummeted 26% from its 52-week highs. Ultimately, I believe this pullback gives investors an opportunity to pick up shares of one of the best compounders on the market today at a discount.
Wingstop is home to a high and rising ROIC of 38%, demonstrating its ability to continue growing through its franchise model in an immensely profitable manner. Best yet, with 90% of its new locations opened by existing franchisees, the odds of a new location’s success are pretty high, considering their familiarity.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Josh Kohn-Lindquist has positions in Celsius, Costco Wholesale, and MercadoLibre. The Motley Fool has positions in and recommends Amazon, Celsius, Costco Wholesale, MercadoLibre, and Monster Beverage. The Motley Fool recommends Wingstop. The Motley Fool has a disclosure policy.
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