It is usually challenging to find growth stocks trading at affordable valuation multiples. That’s because growth stocks command a premium when compared to average stocks, thanks to the rapid pace of increase in their top and bottom lines, which outpaces the overall industry or the business they operate in…
However, some growth stocks are terrific bargains right now, like Apple (NASDAQ:AAPL), Chewy (NYSE:CHWY), and Micron Technology (NASDAQ:MU). Investors can buy them right away as they trade at relatively attractive valuations, and they seem capable of sustaining their impressive momentum for a long time to come thanks to a bunch of secular catalysts. Let’s take a closer look at these three screaming buys right now.
Apple has stepped on the gas after the launch of its 5G-enabled iPhone 12 models. The company’s revenue in the first six months of fiscal 2021 has shot up 34% year over year to $201 billion, a huge jump over the 5.5% top-line growth it registered in fiscal 2020 which ended in September last year.
The iPhone 12 lineup dominates the 5G smartphone market, cornering more than 30% of shipments in the first quarter of 2021. Apple shipped 40.4 million 5G iPhones in the first quarter of the year, nearly double the shipments of second-place Oppo as per Strategy Analytics.
The iPhone maker’s 5G dominance pushed its overall smartphone shipments to 57 million units in Q1, up 44% over the prior-year period. It is worth noting that Apple’s growth was significantly higher than the overall smartphone market’s year-over-year growth of 24% during the quarter. This helped it close the gap with first-place Samsung, which registered a 32% year-over-year increase. Apple’s average selling price (ASP) per iPhone unit also increased 13.3% to $841.
The advent of 5G smartphones has lifted Apple’s fortunes big time, driving an increase in both shipments and ASP. This is unlikely to change given the massive installed base of users in an upgrade window and Apple’s impressive pricing.
The good news for Apple is that 5G smartphones are still in their early phases of growth. They accounted for just under 40% of total smartphone shipments in Q1. IDC estimates that 5G smartphones will account for nearly 70% of overall shipments of 1.53 billion units by 2025, which means that they will hit 1 billion in shipments by that year.
Apple has already gotten off to a solid start in this market, and it could keep winning big in the long run as well if it continues to hold on to its impressive share. That’s why investors on the hunt for a 5G stock should take a closer look at Apple.
The stock is trading at 27 times trailing earnings, well below last year’s average price-to-earnings (P/E) ratio of 40. The price-to-sales (P/S) ratio of 6.5 is also below the 2020 average of 8.47. This makes Apple an enticing pick for growth investors as it has switched into a higher gear and can be bought at a cheaper valuation than last year.
Chewy stock has lost nearly a quarter of its value in 2021 despite posting outstanding growth recently that trounced Wall Street’s expectations, hamstrung by fears of a drop-off in sales in a post-pandemic scenario. But its results and guidance provide clear indications that the rapid pace of growth is here to stay for the long run.
The company forecasts 30% to 31% revenue growth for the first quarter of fiscal 2021, which ended in April. Chewy is forecasting 24% to 25% top-line growth for the full year, along with an increase of 50 basis points to 100 basis points in the adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) margin. The annual outlook wouldn’t have been so strong if online sales of pet products and supplies were to actually fall once people started coming out of their homes.
What makes Chewy’s sharp pullback even more surprising is the fact that it occupies a dominant position in a nascent industry that’s worth several billion dollars. Chewy management pointed out on the March earnings conference call that the share of online sales of pet products and supplies in the U.S. jumped to 30% last year from 7% in 2015. By 2025, that share is expected to jump to 53%.
The pet products and services market in the U.S. was worth an estimated $107 billion last year, which means that the online channel accounted for just over $32 billion in sales. Given that Chewy delivered $7.15 billion in sales in fiscal 2020, it can be assumed that…
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