Amid economic uncertainty and inflation, many investors may struggle to see consumer stocks as "unstoppable" these days. Additionally, the front-loading of growth during the pandemic led to a hangover in many of these companies that contributed to the 2022 bear market in stocks.
Nonetheless, bear markets will only hold back the stocks of visionary, well-managed companies for so long. Eventually, such successes can make their stocks unstoppable, and Airbnb (ABNB 2.85%), Floor & Decor (FND 3.88%), and Shopify (SHOP 0.73%) look like excellent examples of this phenomenon.
Airbnb
Airbnb likely has staying power for its transformational effect on the short-term rental market. Its innovative website has created a network effect among hosts and visitors alike, attracting more properties and tenants to the site.
But it stands out over Expedia's Vrbo and other sites with its use of artificial intelligence (AI). The company applies this technology to activities ranging from suggesting properties and activities for tenants to pricing a specific property in a particular area.
With that, customers booked more than 236 million nights and experiences in the first half of 2023. Also, the $4.3 billion in revenue earned during that time was 19% higher than the same period last year.
Moreover, due to a 16% rate of costs and expense growth and a massive surge of interest income, net income came in at $767 million, a 113% increase year over year.
Consequently, the stock is up by almost 50% in 2023 despite trading in a range for most of the year. With its P/E ratio of 36 near record lows, the market has priced Airbnb at a level where investors could earn considerable profits once the stock gains traction.
Floor & Decor
Floor & Decor has forged a growth business in unexpected areas, namely hard flooring and home decor. It stands out in this competitive business by offering extensive selections and developing relationships directly with suppliers. Its over 200 locations across 36 states give them considerable pricing power for bulk buys, allowing them to keep prices low.
The company also employs design experts, offers financing options, and builds relationships with contractors, allowing a customer to coordinate a project within the Floor & Decor ecosystem.
That approach allowed Floor & Decor's net sales to grow 24% yearly in 2022. This is remarkable growth considering Global Market Insights predicts a 3% compound annual growth rate (CAGR) for the hard flooring industry through 2032. But with rising rates and economic uncertainty, net sales of less than $2.3 billion in the first six months of 2023 increased by just 7%.
Additionally, operating expenses surged 18% higher during this time. That led to a net income of $143 million, which fell 6% from one year ago.
Despite a considerable pullback, the stock is up almost 20% this year. Moreover, its P/E ratio of 31 is below long-term averages, indicating now might be a good time to add shares in this retail stock.
Shopify
Like Floor & Decor, Shopify holds the potential for unstoppable growth in a crowded industry. Its e-commerce platform has stood out for allowing retailers to customize sales sites without coding skills. It has also built an ecosystem that can help its business with other activities such as raising capital, handling customer payments, and managing inventory sold on and offline.
Admittedly, the ecosystem shrank after Shopify decided not to compete in the logistics business. While that presumably deprives the company of a massive competitive moat, the cost of building out this network led to quarter after quarter of losses, making it unlikely the company would have turned a profit for years.
Nonetheless, Shopify is in a strong market position. It has become the No. 1 e-commerce platform in the U.S., surging ahead of the WordPress plug-in WooCommerce.
Additionally, selling the fulfillment business has improved the financials. Its $3.2 billion in revenue for the first half of the year rose 28% over 12 months. And despite a $1.3 billion impairment charge from selling the logistics business, net losses for the period fell to $1.2 billion versus $2.7 billion in the first six months of 2022. This means that Shopify would have turned profitable were it not for the impairment charge.
Amid the sale of the logistics business, Shopify stock is up by around 50% this year. And even with a price-to-sales (P/S) ratio of 11, its valuation is low by historical standards. A low sales multiple and a likely return to profitability could take this top e-commerce company much higher.
Will Healy has positions in Shopify. The Motley Fool has positions in and recommends Airbnb and Shopify. The Motley Fool has a disclosure policy.
