For anyone unfamiliar with the term, growth stocks refer to companies that experience above-average growth rates and typically reinvest profits for future growth. These companies tend to have attractive valuations and a long runway for growth, allowing investors to insulate their portfolios from market volatility.
Of course, certain factors must be considered when investing in growth stocks because not all of them can be winners. For instance, when evaluating a growth opportunity, investors need to consider pipeline growth, industry competition, and market trends that can negatively impact the stock’s price. In other words, it’s important to take a holistic view of the investment rather than focusing solely on fundamentals.
Historically, growth stocks have demonstrated strong returns. Let’s take the S&P 500, which houses the 500 largest companies by market cap. In 2023, the index returned 24%, an impressive bounce back from the previous year. This year, it has already returned 11% in the first quarter (Q1).
In essence, there’s no better time to rally behind the top growth names in the market.
Nvidia (NVDA)
One name that’s high on analysts’ high-growth potential stocks list is Nvidia (NASDAQ:NVDA). Shares of the company have been on a tear, increasing by 210% in the last twelve months. The chipmaker shows no signs of slowing down, as it passed the $3.3 trillion mark earlier this month. Nvidia now stands as the most valuable U.S.-based company in terms of market cap.
The driving factor behind Nvidia’s growth is its unique graphic processing units (GPU). These chips can handle large volumes of graphic data and process calculations at a breakneck speed for image rendering. The utility of the GPUs was further bolstered by AI, where Nvidia’s chips efficiently crunched the data needed to train AI models.
This product’s diverse capabilities have made it a core component in nearly every technological innovation today. Its success was reflected in Nvidia’s financials, with revenue up by 427% in the previous quarter. It anticipates a 2% increment in Q2.
As Nvidia continues to build on its existing chips, the potential for growth remains endless.
Walt Disney Company (DIS)
The House of Mouse is the second growth pick on this list. Disney (NYSE:DIS) is perhaps most famous for its theme parks and movies, but the company also boasts a broad portfolio of high-growth businesses, including its streaming service and ESPN, which will be significant catalysts for growth.
Now, coming to the financials, it’s worth noting that DIS stock is down by nearly half from its 2021 highs. This decline can be attributed to rising theme park operating costs and the death of cable TV, which ate into its revenue. Nevertheless, several trends are in Disney’s favor this year, earning it a spot on this list of high-growth potential stocks.
One of these positive developments is the success of its streaming business. After a post-pandemic slowdown in streaming, the segment achieved profitability in the last quarter. Revenue for the direct-to-consumer (streaming) business was up 13% from the prior year.
A second positive trend is its ESPN streaming service, slated for launch in 2025. Given the broad viewership of sports channels, this new business will serve as a huge tailwind in the coming years.
Disney’s robust streaming business creates a strong foundation for growth, making this the perfect time to get behind this stock.
Ulta Beauty (ULTA)
The third name on this list is an undervalued play that has the potential to generate massive returns in the long haul. Shares of the beauty giant Ulta Beauty (NASDAQ:ULTA) are down by 16% this year amid concerns surrounding lower consumer spending and industry competition. And while these concerns hold merit, Ulta’s diverse product offering and loyal customer base will help the company weather these challenges.
Let’s look at decreased consumer spending, for instance. While comparable store sales in the first quarter grew by 1.6%, this was still a significant decline from the same period last year. However, it’s worth noting that a percentage of Ulta’s revenue comes from in-store beauty services. Research by Placer.ai indicates that foot traffic in its stores outpaced competitors in the wellness segment in Q1. As the company continues to invest in its in-person offerings, this will drive increased product purchases in its stores.
Now, coming to the second concern €”industry competition. Ulta’s biggest competitive edge over other beauty brands lies in its popular loyalty program. The program boasts 42 million members and accounts for 95% of its total sales. In the last few years, the loyalty program has seen steady growth in its members and sales numbers, making it a key driver for future revenue growth.
Market concerns have pushed ULTA shares lower, positioning this company as a prime candidate among high-growth potential stocks.
On the date of publication, Divya Premkumar did not have (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.
On the date of publication, the responsible editor did not have (either directly or
indirectly) any positions in the securities mentioned in this article.
Divya has a background in finance and accounting and has worked in FP&A roles at Fortune 500 companies. She is an avid reader and enjoys writing on a variety of topics including stocks, crypto, blockchain and global policy.