The market has been in pullback mode since mid-July, with the correction accelerating as the yen carry trade unwound. Despite a bounce from Aug. 5 lows, the S&P 500 is still down over 5% from its highs, while most growth stocks have corrected by double-digit percentages. As this correction unfolds, it’s time to focus on growth stocks to buy on the dip.
A correction often presents buying opportunities in the top growth ideas. Even though there have been hints of an economic slowdown, these top growth stocks have very solid fundamentals. Indeed, their quarterly reports highlighted their strong operating momentum as they crushed analyst estimates. Each achieved industry-leading growth in its category, delivering over 40% revenue increases.
Given their strong fundamental momentum and decent pullbacks, it’s time to consider these growth stocks to buy on the dip. Their managements are optimistic about the growth path ahead, which means more upside could be on the cards.
e.l.f. Beauty (ELF)
After falling 14% post-earnings, e.l.f. Beauty (NYSE:ELF) is among the top growth stocks to buy on the dip. Indeed, the selloff was an odd reaction to a stellar quarter. The cosmetics and beauty brand beat earnings estimates and raised guidance.
Digging into the numbers highlights why this industry-leading growth star has more upside. In its Q1 fiscal year 2025, revenues soared 50% year-over-year to $324 million, exceeding estimates by $19 million. Impressively, it also gained 260 basis points in market share, highlighting its brand strength. This was the 22nd quarter in a row of market share gains and net sales growth.
Based on management commentary on the earnings call, e.l.f. Beauty is outperforming the category. For instance, in color cosmetics, it grew by 26% while the category declined by 1%. What’s more, they see more opportunities for growth in retail channels. They expect to replicate in other retail chains the success they have achieved at long-term partner Target (NYSE:TGT), where e.l.f. Beauty has a 20% market share.
Under this backdrop, management expects net sales between $1.28 billion to 1.3 billion from the previous $1.23 billion to 1.25 billion. Moreover, they expect an adjusted EPS per share of $3.36 to $3.41, meaning the stock trades at 47 times forward EPS. That’s a discount, given that the revenue guidance calls for at least 20% net sales growth in FY2025.
AppLovin (APP)
AppLovin (NASDAQ:APP) is a performance-based advertising platform for gaming marketers. Once again, the company showcased impressive growth and cost discipline to deliver amazing Q2 2024 results. Its technology is only getting better, driving increasing advertiser spend on the platform.
Indeed, the platform is leveraging the power of AI to make its models better. This way, the platform is becoming more accurate, enabling better ad targeting. That’s why the company grew revenue by 5% sequentially and 44% YOY to $1.08 billion in Q2 2024.
Besides the top-line growth, the company showed massive operating leverage. Adjusted EBITDA margins improved from 44% in Q2 2023 to 56%. Due to this margin improvement, adjusted EBITDA soared 80% YOY to $601 million. Net income margins also expanded from 11% to 29%, resulting in net income of $310 million, a 286% YOY growth rate.
Particular strength was evident in the software platform numbers, where revenues grew 75% YOY to $711 million. What’s more, management issued guidance calling for between $1.115 and $1.135 billion in revenues in Q3, representing at least 29% growth.
With these impressive results, AppLovin is one of the best growth stocks to buy on the dip since it has declined by over 10% in past three months. Additionally, in terms of valuation, it’s undervalued at a forward non-GAAP price-to-earnings-to-growth ratio of 0.5.
Duolingo (DUOL)
This language-learning app has pulled back over recent months, landing it on the growth stocks to buy on the dip list. The stock is down 17% year-to-date due to fears of AI disruption in education technology. However, per recent earnings, Duolingo (NASDAQ:DUOL) is as strong as ever.
From user growth to profitability, its Q2 2024 earnings report was perfect. Daily active users grew 59% YOY to 34.1 million, while monthly active users surpassed the 100 million milestone. Also, paying subscribers rose to 8 million, an impressive feat considering that at IPO three years ago, the app only had 2 million subscribers.
Because of the user growth, revenues grew 41% YOY. Adjusted EBITDA doubled, increasing from $20.9 million in the prior year’s quarter to $48.1 million. This industry-leading growth rate makes Duolingo among the best growth stocks to buy on the dip.
Lastly, management sees AI as an opportunity, not a threat. The company has rolled out Duolingo Max, its premium tier with AI-enabled features, in 27 countries. Moreover, they expect it to be available in most countries by the end of the year. Max started impacting financials at the end of Q2 and management believes it will contribute to growth going forward.
On the date of publication, Charles Munyi had a long position in ELF but did not hold (either directly or indirectly) any positions in other securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
