Among the various characteristics that investors keep watch for when hunting for growth stocks is an expanding sales base. It signals that a company is winning market share or that it has other favorable characteristics like solid customer loyalty. An expanding sales base also makes it much easier for the company to boost profitability when revenue is growing quickly.
But growth isn't the only factor to account for when searching out an excellent long-term investment. Many companies expand sales at a robust pace only to falter when a new competitive threat enters the industry. With that in mind, let's look at a few growth stocks that seem to have the right ingredients for long-term capital appreciation.
Read on for some other reasons besides growth that illustrate why Ulta Beauty(NASDAQ: ULTA) and McDonald's(NYSE: MCD) are two growth stocks to consider right now.
1. Ulta Beauty
Ulta Beauty just kicked off fiscal 2023 with a bang. The beauty and spa products retailer posted a 9% increase in comparable-store sales in late May, on top of an 18% spike in the prior-year period. Overall revenue was up 12% year over year in Q1 with help from an expanding store base.
Still, investors sent shares lower following the report on some signs of weakness in the beauty, skincare, and makeup segments of the business. Ulta Beauty's management reported increased pricing pressures from rivals who are ramping up promotions. That shift led to a 1.5% decline in average spending in Q1.
Still, Ulta Beauty posted a head-turning 11% year-over-year customer traffic boost for the period, which underscores its popularity in this attractive industry. And management still sees sales rising by a further 5% for the full-year 2023, even though the profit margin will now land closer to 14.5% of sales than 15% of sales.
A consumer-focused business like this is exposed to shifting economic expansion trends. But those short-term worries on Wall Street mean patient investors can take advantage of the stock price drop in May to pick up this growth stock at a discount.
McDonald's stock is setting new all-time highs in a down market, but that overperformance is well-founded. The fast-food giant recently posted accelerating sales growth trends thanks to a healthy balance between rising traffic and increased average spending. It is beating peers including Chipotle and Restaurant Brands International in key metrics like traffic and market share growth.
Shoppers seem to love the restaurant chain's improvements to core competencies like food quality and average wait times. "Running great restaurants is fundamental to our business momentum," CEO Chris Kempczinski said in late April. Success here has allowed Mickey D's to boost its revenue base through a wide range of economic environments over several decades. That track record lowers the risk for investors concerned about a recession developing in late 2023.
You'll have to pay a premium for McDonald's stock today, with shares trading at over 9 times annual sales. But consider that McDonald's profit margin is running near all-time highs and has room to expand thanks to the lift from rising prices and increased demand for delivery and drive-thru. In a few years, you likely won't regret having put this high-performing business into your portfolio, even at today's elevated prices.
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Demitri Kalogeropoulos has positions in Chipotle Mexican Grill and McDonald's. The Motley Fool has positions in and recommends Chipotle Mexican Grill and Ulta Beauty. The Motley Fool recommends Restaurant Brands International. The Motley Fool has a disclosure policy.