Growth investors aim to outperform the market by accumulating investments with meaningful revenue and earnings growth. Some of these companies trade at high valuations that can become reasonable if growth rates remain high for a few years.
The growth stocks in this list are in the early innings of their development and do not have market caps above $10 billion. They have considerable runways and serious potential to deliver high gains.
Elf Beauty (ELF)
Investors looking to diversify into growth stocks that aren’t tech companies may want to take a closer look at Elf Beauty (NYSE:ELF). The cosmetics company has rewarded shareholders with a 173% gain over the past year. The 5-year gain is even more impressive and comes in at 1,790%.
Elf Beauty has attracted many fans due to its quality products and ingredient sourcing. The company avoids unethical ingredients that are common in other beauty products. The stock trades at a 52-forward P/E ratio and has tremendous net income growth that can reduce its valuation in the future.
The firm reported 184% year-over-year net income growth in the second quarter of fiscal 2024. Revenue surged by 76% year-over-year. The company gained 330 basis points of the color cosmetics category share and can reward shareholders even more as it gains momentum.
Elf Beauty has a smaller presence in international markets but is quickly gaining market share. The company achieved 157% year-over-year international net sales growth in Q2 FY24. Elf Beauty is outperforming its category by vast margins in Canada and the United Kingdom.
Elf Beauty is in the early innings of its international expansion and is still experiencing high domestic sales growth.
Perion (PERI)
Perion (NASDAQ:PERI) is a small advertising company based in Israel that offers a low valuation and high growth rates. The company reported 17% year-over-year revenue growth in the third quarter of 2023 and raised its net income by 28% year-over-year. Those growth rates brought the company’s net profit margin to 17.7%.
The company operates in several high-growth advertising sectors like connect-TV and digital out-of-home advertisements. Perion has diversified its revenue streams but still makes approximately 45% of its revenue from a partnership with Bing.
Investors may feel jittery since this partnership is set to expire in 2024. However, Perion and Bing have had a 14-year partnership and a renewal is extremely likely. Perion stock trades as if the deal has already fallen through. The stock has a 10-forward P/E ratio and a 0.46 PEG ratio.
This under-the-radar only has a $1.5 billion market cap and is up by 823% over the past five years. Despite the big long-term gain, the stock is flat year-to-date and is down by 8% over the past year.
Duolingo (DUOL)
It’s become a lot easier to get a good education with online apps and platforms. Duolingo (NASDAQ:DUOL) is one of the companies leading this charge. The firm started as an educational app that helps people learn new languages. However, Duolingo has expanded to offer additional subjects like math and music.
While language learning will always be the app’s foundation, the expansion into new subjects will increase Duolingo’s total addressable market. There are also great synergies between these services. A student learning Spanish may also want to sharpen their music skills. A child learning math on the Duolingo app may be interested in learning a new language as well.
Duolingo had its IPO in 2021 so there isn’t 5-year data yet. However, the stock has gained 84% over the past year. Shares are in the middle of a correction and are down by over 25% from the all-time high.
The only concern is valuation, but the company’s robust revenue and earnings growth can compensate in the long run. The company achieved 43% year-over-year revenue growth in the third quarter of 2023. The company flipped the switch to profitability and saw its total bookings increase by 49% year-over-year. High total bookings imply high revenue growth in the future.
On this date of publication, Marc Guberti held long positions in ELF, DUOL, and PERI. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
