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Motley Fool Issues Rare “All In” Buy Alert
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The stock market may look dour right now, but there’s a good reason to rejoice. This year’s sharp decline has been broad based and caused the share prices of numerous companies to fall to multi-year lows. This means that the baby has essentially been thrown out with the bathwater, and good companies are also seeing their valuations pummeled without good reason.
Investors may fret over reduced growth rates, but smart investors know that great companies will always bounce back stronger in the end. The important attributes to look out for include a strong brand, loyal customers, and sustainable tailwinds that can power the business to greater heights. These characteristics are what make these three stocks attractive to own, as they have what it takes to continue doing well once the twin scourges of high inflation and rising interest rates abate.
Image source: Getty Images.
Coupa Software (COUP 3.68%) specializes in helping businesses with their spending, and its cloud-based platform connects clients to more than 7 million suppliers globally. The company wrapped up a successful fiscal 2022 ending Jan. 31 with record revenue of $725 million, up 34% year over year, along with record annual billings of $855 million, 33% higher than the prior year.
The momentum has carried over to the current fiscal 2023 (FY 2023) as Coupa reported a 17.7% year-over-year jump in revenue to $407.5 million for the first six months of FY 2023. Guidance for FY 2023 is for full-year growth of 16% year over year to $841 million, with subscription revenue taking up slightly more than 90% of total revenue.
Investors should also be pleased with Coupa’s consistent free cash flow generation. FY 2022 saw $154.2 million of positive free cash flow while the first half of the current fiscal year saw a 6.6% year-over-year increase in free cash flow to $70.6 million. The company now has a $3.8 trillion cumulative spend under management, demonstrating how its clients have steadily placed more faith in its platform to manage all aspects of their business spending, including supply chain, procurement, and invoicing. Coupa believes there is still a $94 billion total addressable market for it to tap into in addition to the $2.3 billion of opportunities it can access simply by expanding its use cases for existing clients.
If you plan on looking dapper, Ralph Lauren (RL 4.20%) is the place to go for luxury apparel. Set up in 1967, the storied brand that sells premium lifestyle products still commands a loyal following, judging from the strength of its earnings report. For its fiscal 2022 ending March 31, Ralph Lauren posted revenue of $6.2 billion, up 41.3% year over year. The company chalked up a net income of $600 million, reversing the $121.1 million net loss it incurred a year ago. The company also declared a 9% year-over-year increase in its quarterly dividend to $0.75 per share. For its fiscal 2023 first quarter, the luxury retailer saw revenue grow 8% year over year with mid-teens comparable store sales growth.
Investors can expect further growth — Ralph Lauren has presented a strategic growth plan aptly titled “Next Great Chapter: Accelerate.” The company’s three-year financial outlook projects mid-to-high single-digit revenue compounded annual growth along with an expansion of the company’s operating margin to more than 15%. Growth initiatives will be anchored on three pillars: elevating and energizing the brand by acquiring and retaining new customers, expanding its lineup of products in under-penetrated categories, and scaling up its ecosystem through digital engagement across 30 cities around the world. With this plan in action, Ralph Lauren looks set to chart its next phase of growth as it cements its status as an iconic luxury brand.
The pandemic’s effects may have worn off for several technology companies, but Shopify (SHOP 3.39%) continues to power on. By providing a platform that entrepreneurs can tap into to start and manage their businesses, the company has earned itself a reputation for those who seek to work from home and achieve a better work-life balance. In just four years alone, Shopify has more than tripled the number of merchants on its platform by offering an affordable basic plan that starts at just $29 per month.
The company’s financial numbers are growing in tandem with the number of merchants on its platform. For the second quarter of 2022, revenue increased by 16% year over year to $1.3 billion, with subscription solutions revenue rising 10% year over year to $366.4 million. Both gross merchandise volume and payments volume climbed by 11% and 22.7% year over year, respectively, to $46.9 billion and $24.9 billion.
Shopify is confident that more merchants will join its platform in the second half of the fiscal year as its marketing initiatives and attractive pricing scheme gain new adherents. With more people keen to explore home businesses and relishing the idea of working purely from home, these trends represent tailwinds that should help Shopify’s business to grow further.
Royston Yang has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Coupa Software and Shopify. The Motley Fool recommends the following options: long January 2023 $1,140 calls on Shopify and short January 2023 $1,160 calls on Shopify. The Motley Fool has a disclosure policy.
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