The stock market has reached new heights, but certain growth stocks are still significantly below their all-time highs and are now appearing more appealing. While Wall Street focuses on large-cap technology firms, several consumer-oriented companies have been overlooked, despite posting strong financial results at the outset of the year.
For investors searching for long-term growth stocks that could excel over the next five years, two standouts are Shopify (SHOP +2.94%) and Dutch Bros (BROS +2.02%).
Shopify
Shopify is demonstrating robust performance, with a 34% year-over-year revenue increase in the first quarter, marking the second consecutive quarter where Shopify merchants exceeded $100 billion in total sales.
This trend indicates a business with a competitive edge. Shopify earns revenue through subscription fees and merchant solutions (shipping, lending, payments, etc.), with the latter accounting for approximately 75% of its business. This model has enabled Shopify to achieve significant profitability, generating $2.2 billion in annual free cash flow, resulting in a solid 17% margin.
Though the stock has dropped by 40% this year due to concerns over potential competition from AI-driven disruptors, these worries overlook Shopify’s established position in the e-commerce landscape. Notably, Shopify’s merchant catalog is searchable via ChatGPT and other leading AI platforms. In Q1, AI-driven traffic surged by eight times compared to the previous year, with conversions from AI-powered searches happening at twice the rate of conventional search channels.
Dutch Bros
Investing in emerging restaurant brands that expand nationally has been a profitable approach for decades. Dutch Bros seems to be following a similar growth trajectory to successful brands like Starbucks. Although Dutch Bros’ stock has declined by 18% year-to-date due to a temporary spike in coffee prices that may affect earnings, the company continues to appeal to customers, representing a good buying opportunity for long-term investors.
With 1,177 locations in 25 states, many may not be familiar with Dutch Bros. However, it is gaining popularity, especially among younger consumers. While Starbucks undergoes leadership changes and transformation efforts, Dutch Bros has consistently reported positive same-store sales in a challenging consumer environment. Recent quarterly revenue rose by 31% year-over-year, driven by 41 new openings and strong same-store growth of 8.3%. A substantial 74% of transactions come from the Dutch Rewards program, indicating customer loyalty.
Management plans to expand to 2,029 locations by 2029, which should elevate brand awareness and lead to an anticipated annual earnings growth rate of 33%. Even though a forward price-to-earnings ratio of 54 seems steep, Dutch Bros is still in the early stages of its expansion and profit-margin enhancement. Its price-to-sales ratio of about 3.5 aligns well with historical valuations of Starbucks and Chipotle Mexican Grill during their growth phases. This coffee stock has strong potential to outperform the market over the next five years.
