Here’s My Top Growth Stock to Buy Now

Growth stocks have been kicked into Wall Street’s bargain bin in 2022. The S&P 500 market index is down 17% year to date, but the more volatile Nasdaq Composite lost 27% over the same period.

Many of the plunging highfliers were surely overdue for a correction, and some of them may not climb back from the dungeon they’re in. However, the broad-based retreat from growth-oriented stocks also reduced the share prices of great companies, regardless of their business prospects or reported results.

Revolve Group (RVLV 7.67%) is a fine example of this phenomenon. The online fashion retailer experienced tremendous business growth in recent quarters and the company consistently crushes Wall Street’s expectations in each earnings report. Yet the stock is down 52.6% year to date and trades at modest valuation multiples today.

Here’s why Revolve is one of the most exciting growth-stock bargains on today’s market.

Skyrocketing sales and profits

This company offers a rare combination of impressive top-line growth and robust bottom-line profits. Revenue increased by 69% over the last two years while earnings before interest, taxes, depreciation, and amortization (EBITDA) climbed 130% higher:

RVLV Revenue (TTM) Chart

RVLV Revenue (TTM) data by YCharts.

Positive profits are uncommon in the online retail sector, but Revolve’s net margin stands at a healthy 10.1% right now. In fact, both EBITDA and net margins have consistently been printed in black ink ever since the company joined the public stock market in 2019.

Management takes pride in Revolve’s track record of profitable growth and it plans to keep it that way for the foreseeable future. This balanced approach to growth and profitability makes Revolve a less risky investment than a pedal-to-the-metal obsession with maximum revenue growth would.

Two people smile at a laptop computer while holding a credit card.

Image source: Getty Images.

The secret sauce: Social media influencers

Mind you, Revolve’s business growth is still impressive. The number of active customers to Revolve’s fashion and luxury goods portals increased by 38% in the first quarter on a year-over-year basis. At the same time, the average order size rose by 13% and the total number of orders jumped 68% higher. These are fantastic customer trends, spanning across the Revolve-branded apparel store and the Fwrd luxury items portal.

The sensational growth stems from some smart and unusual marketing tactics. Revolve leans heavily on social media channels such as TikTok, Pinterest, Twitter, and Meta Platforms‘ Instagram. Through a brand ambassador program and active recruiting of eyeball-magnet influencers on social media platforms, the company gives its brand and services exposure in some of the most effective advertising channels available today. Star influencers also curate collections on the Revolve and Fwrd shopping sites, which lends more credibility to the online marketing message.

Yet the stock is incredibly cheap

Revolve’s strategy is a perfect fit for the retailer market of 2022, and nobody taps into social media influencers better than this company. As a result, Revolve typically beats analyst projections by double-digit percentages on the revenue line alongside triple-digit surprises in terms of earnings per share.

You’d think that this level of tireless success would be rewarded by market makers, but Revolve’s stock price was sliced in half this year. Shares are changing hands at the modest multiples of two times sales and 20 times earnings, reminiscent of sleepy low-growth retailers such as The Gap and Ross Stores.

This, too, shall pass. Eventually, the market will get over its fear of growth-oriented stocks and give Revolve proper credit for its solid profits and impressive growth. It may take some time since the marketwide nerves resulted from several macroeconomic trends that won’t go away overnight. But you’ll see Revolve Group’s stock trading at much higher multiples when the coronavirus pandemic finally recedes, the overheated inflation cools down, and the kinks in worldwide supply chains have been bent back into shape. You should consider grabbing a couple of shares while they’re still cheap.

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