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The S&P 500 index has averaged 10% annualized returns during the past half-century, but it’s not that difficult to outperform that target if you invest in a group of well-chosen growth stocks.
To give you some ideas, a team of Motley Fool contributors see promising prospects in e.l.f. Beauty (NYSE: ELF), Dutch Bros (NYSE: BROS), and Celsius Holdings (NASDAQ: CELH). Here’s why these stocks should deliver superior returns.
This is one of the fastest-growing consumer brands
John Ballard (e.l.f. Beauty): Shares of e.l.f. Beauty have rocketed 275% during the past three years. The company’s focus on delivering value in color cosmetics has enabled the company to gain significant market share against industry leaders. The company still has tremendous growth potential worldwide, but investors can buy the stock at a more reasonable valuation with the shares down more than 50% from their high in February.
High inflation bolstered e.l.f.’s value proposition. In the 2025 fiscal first quarter ended June 30, sales jumped 50% from the year-ago quarter. It is now the No. 2 mass brand in the U.S., with 12% market share, and management is working to expand the brand globally. International sales make up only 16% of the business, but grew an impressive 91% year over year last quarter.
e.l.f. Beauty has promising growth potential, and management sees value in the stock after the sell-off. The company recently announced a $500 million share repurchase program. The stock has declined on expectations that higher marketing investments will weigh on earnings and margins in the near term. However, earnings are still expected to be up 10% this year before accelerating to 26% in fiscal 2026.
Given the enormous runway in international markets, the stock should outperform the broader market over the next five years and beyond.
Great coffee, growing sales
Jennifer Saibil (Dutch Bros): How do you open a chain of restaurants that basically sells coffee but creates a message distinctive enough to differentiate it from Starbucks and gain a huge following? Ask Dutch Bros. This small-town, down-to-earth coffee chain is expanding rapidly, generating high-sales growth and developing a growing base of loyal fans.
Dutch Bros has been around for decades as a small, local coffee shop chain in Oregon. After honing its image and culture and developing a line of popular beverages, it became a public company with big growth plans. It has successfully entered new states on the West Coast and across mostly Southern states, for now, and it has grown from a total of 415 stores in 2020 to 912 by the end of Q2. It opened 159 stores in 2023, and it’s chasing an opportunity of 4,000 stores during the next 10 to 15 years, which is a goal that implies accelerating expansion.
With new stores come higher sales. Sales growth has been strong and steady, coming in at 30% year over year in Q2. With higher sales and efficient operations come profits, and it’s been reporting growing net income.
One important new development is digital ordering. Despite the seeming need for everyone to go digital these days, Dutch Bros has found great success without it. Now, however, it has tested mobile ordering in some of its stores, and it’s set to go live by the end of the year. That sets it up for further success. Between its popular drinks and culture, new stores, and digital launch, Dutch Bros should easily be able to keep up strong growth for the foreseeable future.
Dutch Bros stock is up 38% during the past year, outperforming the market, and it could be a market-crushing stock during the next five years and longer.
This beverage stock has more upside
Jeremy Bowman (Celsius Holdings): Celsius Holdings was one of the biggest breakout stocks of the pandemic, surging after the energy drink caught fire on Amazon during the lockdown period.
From the start of 2020, the stock gained more than 5,000% at one point before falling sharply in recent months on concerns about slowing growth, a maturing energy-drink category, and news that Pepsico overstocked on Celsius inventory, meaning it overestimated demand after becoming a distribution partner.
Celsius stock is now down nearly 70% from its peak this year, but that sets up a good buying opportunity for investors. While the company’s days of triple-digit percentage gains are probably over, the growth story is far from dead, and the stock looks reasonably priced now at a price-to-earnings (P/E) ratio of 31.
In Q2, revenue jumped 23% to $402 million, and its gross margin continued to improve, widening 320 basis points to 52%, showing the business continues to become more efficient, benefiting from freight optimization and lower materials costs.
Though there are signs that growth in the overall energy-drink category is slowing as market leader Monster Beverage reported just 6% constant-current growth in its Q2, Celsius continues to gain market share with retail-dollar share up 1.4 percentage points to 11% in Q2, while growth remains strong at the warehouse-club level and on Amazon.
The upshot is that Celsius looks oversold after the recent pullback. Investors can take advantage as the business still has a promising runway of growth ahead of it.
Should you invest $1,000 in e.l.f. Beauty right now?
Before you buy stock in e.l.f. Beauty, consider this:
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Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $760,130!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of September 23, 2024
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jennifer Saibil has no position in any of the stocks mentioned. Jeremy Bowman has positions in Amazon and Starbucks. John Ballard has positions in Dutch Bros. The Motley Fool has positions in and recommends Amazon, Celsius, Monster Beverage, Starbucks, and e.l.f. Beauty. The Motley Fool recommends Dutch Bros. The Motley Fool has a disclosure policy.
3 Monster Stocks That Can Crush the S&P 500 Over the Next 5 Years was originally published by The Motley Fool
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