Retail stocks are never seen as compounders that can provide outsized returns. Of course, that narrative has changed this year with the performance of Abercrombie and Fitch (NYSE:ANF). Over the past year, ANF has returned more than 440%.
Of course, not all retail stocks will provide you with these returns. But just like any other sector, choosing winners can provide incredible growth for your portfolio. These three retail stocks offer very different products and services to consumers. What do they have in common? Their stocks are steadily moving higher and to the right on their charts. Check out these three retail stocks to buy that could be the next Abercrombie and Fitch.
Celsius (CELH)
Celsius Holdings (NASDAQ:CELH) is an American energy drink maker looking to expand into international markets. Wall Street thinks highly of the stock, as analysts have a one-year average price target of $94.23 and a street-high target of $110, which indicates the potential for a 40% upside from the current price.
Why has Celsius done so well? It has a variety of different products that target different audiences. For the most part, the consensus is that Celsius beverages taste better than most other energy drinks. Its distribution partnership with PepsiCo (NASDAQ:PEP) has allowed it to sell at major retailers like Walmart (NYSE:WMT). Celsius is eyeing an expansion into Europe and other international markets over the next couple of years.
Stocks with impressive growth tend to trade at higher valuations. The company has a five-year revenue CAGR of 91% and a ten-year CAGR of 71%. Its gross margin of 50% is easily higher than the industry average of 38%, showing how efficiently Celsius runs. Shares trade at 72x forward earnings but just 13x sales. These are high for a retail stock, but the growth rates of Celsius speak louder than those of its multiples.
On Holdings (ONON)
On Holdings (NASDAQ:ONON) is a Swiss running shoes and apparel maker founded by former Swiss Ironman Champion Olivier Bernhard. Of the 21 analyst ratings it received in May, 16 were a Buy or Strong Buy. The street-high analyst price target is $55.18, more than 30% higher than the current price.
On is looking to disrupt the industry with its CloudTec technology, which has garnered a strong following of running enthusiasts and will be used by multiple athletes in the upcoming Paris Summer Olympic Games. On is also taking a chunk of the tennis apparel market with sponsor athletes like Roger Federer and world number one Iga Swiatek.
Like Celsius, On commands a high price multiple due to its revenue growth and strong gross margin. On’s gross margin of 60% is double the industry average of 30.1%, which also shows the pricing power that the company has for its products. Shares of ONON trade at 13x sales and 45x forward earnings after rising by nearly 60% in 2024. With a strong presence at the Olympic Games, On can capture an even larger market share.
Costco Wholesale (COST)
Costco Wholesale (NASDAQ:COST) is a membership-based retail chain that follows the big-box wholesale model. As of June 2024, Costco is the 24th-largest company in the world by market capitalization. Analysts remain bullish on the stock even after returning 60% over the past year. It has a one-year price target range of $650 to $940, which implies the potential for about 15% more upside.
The most important part of Costco’s business is its memberships. As of 2023, Costco had more than 130 million active members worldwide. Why is this important? In 2024, Costco announced it was raising the price of memberships, cracking down on shared memberships, and requiring a membership to purchase food from its food court. This pricing power and recurring revenue show why Costco’s membership is so vital to the company’s success.
Although shares are over $800 now, they trade at just 1.4x sales and 46.5x forward earnings. For a business this size, to grow net income at a ten-year CAGR of 14% is impressive and part of the reason you are paying a high multiple for the stock. At its current price, don’t rule out an imminent stock split and potentially even an addition to the Dow Jones Industrial Average.
On the date of publication, Ian Hartana and Vayun Chugh did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.