No pain, no gain. Seasoned investors know that even the best growth stocks experience both extremes at one point or another. Over the past few years, investors have witnessed a reversal of fortunes and back again in the stock market.
A 14-year long bull market that began after the financial crisis of 2008 to 2009 ended with the global pandemic. Stocks lost a third of their value or more in just a few weeks. They quickly rocketed higher again, only to run into last year’s bear market. Growth stocks were especially hard hit. The Nasdaq 100 lost 33% of its value in 2022.
Things have reversed course yet again this year. The growth-oriented index surged 41% over the first seven months of the year. Despite such gains, there are still some deep value stocks available to investors. The following companies are three of the best undervalued growth stocks to buy in July.
CrowdStrike Holdings (CRWD)
Cloud computing represents an enormous opportunity for platforms assisting businesses moving and managing their data in the cloud. The weakest link is securing the data from breaches and theft. The Identity Theft Research Center’s latest report indicates data breaches are on pace to set a new record this year.
That’s where CrowdStrike Holdings (NASDAQ:CRWD) comes in. The leading cybersecurity stock uses both human and sophisticated machine learning, artificial intelligence, and behavioral analysis to detect and thwart cybersecurity threats. The company processes trillions of events every week through its Falcon platform. It also lets customers dial in the level of protection they need through cost-effective personalization and customization options.
CrowdStrike had more than 23,000 customers at the end of January, a 41% increase of the year before. That’s a near 10-fold increase over the number it had four years ago. Annual recurring revenue jumped 42% to $2.7 billion in the first quarter, driven by greater product utilization from its existing customer base. Currently, customers using five or more of its modules represent 60% of subscription customers, with those using seven or more amounting to nearly a quarter of the total.
Although CRWD stock is up 60% from the lows it hit earlier this year, there is still plenty of upside potential ahead. At the top end of its target price range, analysts see 90% more upside for the cybersecurity stock. As more smart devices, cars, and even cities go online, cybersecurity stocks are a prime investment opportunity for the next decade or longer.
Dutch Bros (BROS)
Drive-thru coffee chain Dutch Bros (NYSE: BROS) is the third-largest coffee chain in the U.S. behind Starbucks (NASDAQ:SBUX) and Dunkin Brands. But with just 716 shops at the end of March, it’s a very distant third to its rivals. For context, Stabucks has 36,000 stores globally.
Still, Dutch Bros is rapidly expanding its footprint. It opened 45 new stores in the first quarter, and expects to open a total of 150 for the full year. Revenue was up 30% for the first quarter, though comparable sales were down 2%.
That’s by design. Dutch Bros is pursuing a “fortressing” strategy. That calls for the flooding of a particular area with more locations. Per-store sales could decline, but total company revenue rises. The networking effect leverages the company’s marketing spend and increases consumer mindshare. It is a strategy popularized by pizza chain Domino’s (NYSE:DPZ).
Dutch Bros’ growth trajectory shows there is still potential for innovation in a mature business like coffee. Wall Street has high hopes the company’s growth will continue. Analysts forecast the drive-thru coffee shop will grow earnings 56% annually for the next five years. With the stock down 47% from its 52-week high, they see anywhere from 31% to 59% upside for this high-growth stock over the coming year.
Chewy (CHWY)
Our pets are members of the family. The humanization of dogs and cats has led to tremendous growth in the petcare industry. Chewy (NASDAQ:CHWY) is one of the best growth stocks in the space to take advantage of the trend.
According to the American Pet Products Association, consumers spent $138.6 billion on their furry family members last year. That’s up 11% from the $120 billion spent the year before. By far, the largest expenditure was on pet food. Some $58.1 billion was spent feeding our pets.
Chewy recorded net sales of $2.78 billion in the first quarter, up 15% year over year. Indeed, even when times get tough for us humans, we’re not willing to sacrifice for our four-legged friends. Chewy notes that not only are customers not trading down, they aren’t trading up less or cutting back on the number of times they make a purchase either.
The online petcare company’s Autoship program is also witnessing phenomenal growth. It now represents 75% of total net sales. Net sales per active customer (NSPAC) grew 15% year over year and now exceeds $500. Inflation and price increases are not driving this growth. Customers are just buying more across numerous categories.
The stock looks wildly expensive by traditional measures such as price-to-earnings and price-to-sales. Yet, those measures are deeply discounted to where the stock traded over the past few years. With a long runway of opportunity ahead, Chewy is a top growth stock to buy in July.
On the date of publication, Rich Duprey 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.
