Without a doubt, 2020 was a difficult year for the U.S. economy. But while consumers abandoned restaurants and airlines en masse, other sectors benefited substantially. In addition, some consumer trends that emerged in the past year are poised to reward bold investors who purchase a stake in maverick companies.
GrowGeneration, Nautilus, and Chewy are three stocks that have rewarded investors handsomely over the past 12 months. Due to the COVID-19 pandemic, consumers are increasingly turning to growing plants, working out at home, and pets to deal with social isolation. Let's look at why these stocks are best poised to benefit from this consumer behavior.
Demand for GrowGeneration's home gardening tools and supplies has gotten a big boost from the rise of the legal marijuana industry. It operates the nation's biggest hydroponic growing chain, with 46 centers in 11 states.
Last year, the company grew its revenue by a stunning 140% year over year to $192 million as more and more states joined the legalization bandwagon. By the end of 2021, GrowGeneration expects to increase its sales to $335 million to $350 million. It currently has over $180 million in cash, with minimal debt.
Trading at a price-to-sales ratio of 15, the stock may seem expensive. But that's not bad for a high-growth company with a clean balance sheet. GrowGeneration plans to expand its reach to 55 stores this year.
Pot growers are always in need of hydroponic supplies, making GrowGeneration a fantastic choice for investing in the rising U.S. legal marijuana market. By 2025, the industry could be worth more than $25 billion, and it's currently growing at 15% per year.
Nautilus sells home exercise equipment including bikes, treadmills, and cardio/strength apparatus. Over the past year, its web traffic and demand have more than tripled. While much of that surge can be attributed to stay-at-home restrictions during the pandemic, people who might not have considered home gyms before may opt for the convenience of staying fit at home rather than pay exorbitant fees in gym memberships. That includes personal trainers who may find it easier to stream lessons themselves from home.
The company had its best performance in history in the third quarter of 2020. Its sales grew by 152% over the prior-year quarter to $155 million. Simultaneously, the company managed to post a $28 million profit, compared to a net loss of $9 million in Q3 2019. This was also Nautilus' fourth consecutive quarter of generating positive cash flow. It is currently integrating its physical equipment with digital features, so that it can generate recurring subscription revenue like its peer Peloton Interactive.
Despite the excellent performance, you can still buy Nautilus shares on the cheap at just 2 times sales.
In the three months ended Nov. 1, digital pet food supplier Chewy had a record $1.78 billion in sales, up 45% over the year-ago period. At the same time, it finally broke even in terms of operating cash flow. That amounted to $55.3 million in Q3 2020, compared to negative $27.8 million in Q3 2019. Chewy now has 17.8 million active customers on its platform, with each contributing about $363 in net sales each year, growing by 40% and 3% year over year, respectively.
Amazon is still top dog in the U.S. pet market. It's expected to make up almost half of what could be a $56 billion industry by 2025. But Chewy's biggest edge is its ability to fill prescriptions, ranging from heartworm to eye care to anxiety medications.
Like GrowGeneration, Chewy is a fast-growing company with an outstanding balance sheet. For Q3, its cash on hand totaled $505.8 million while it possessed no debt. Despite investing most of its capital for the sake of growth, it is near breakeven. The company's net margin stands at 2.2%. Its stock is currently trading at just 7 times revenue. If you are interested in a top-quality pet stock to buy, look no further than Chewy.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
Zhiyuan Sun has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends GrowGeneration. The Motley Fool recommends Chewy, Inc.