Growth stocks like Five Below (NASDAQ: FIVE), The Trade Desk (NASDAQ: TTD), and e.l.f. Beauty (NYSE: ELF) have seen significant declines recently, leaving investors wondering what’s next. While there are valid reasons for their underperformance, there’s also a strong case to be made that these companies can overcome their current challenges and deliver long-term value. Here’s a closer look at what’s weighing on these stocks and why they might still be worth considering.
Five Below: Inflation and Trade Tensions Weigh on Growth
Five Below has built its reputation on offering products for $5 or less, a model that has driven impressive revenue growth. In the first three quarters of fiscal 2024, the company’s net sales grew by 12% year over year, thanks to the addition of 205 new stores. With over 1,700 locations and plans to open 1,800 more by 2030, Five Below is undeniably a growth stock.
However, the company faces challenges in a changing economic landscape. Inflation has made it harder to maintain its $5 price point, and 40% of its products are sourced internationally, leaving it vulnerable to escalating trade tensions. These factors have contributed to the stock’s decline of more than 50% from its 52-week high.
Despite these headwinds, Five Below’s stock price appears to reflect these challenges. Trading at around 20 times its estimated earnings per share (EPS) of 4.34to4.52, the stock is relatively inexpensive for a company growing at a double-digit rate. Additionally, Five Below boasts a strong balance sheet with over $200 million in cash and no debt, giving it the flexibility to adapt to economic pressures. For patient investors, this could be an opportunity to buy into a proven growth story at a discount.
The Trade Desk: A Rare Earnings Miss Sparks Concerns
The Trade Desk, a leader in digital advertising, recently delivered an unexpected earnings miss, sending its stock down more than 40% from its high. For Q4 2024, the company reported revenue of 741million,fallingshortofitsguidanceofatleast756 million. This marked the first time The Trade Desk underperformed its own expectations, raising concerns about its growth trajectory.
CEO Jeff Green has taken this setback seriously, initiating the largest reorganization in the company’s history to position it for faster growth. While Q4 revenue growth slowed to 22%, and the company forecasts just 17% growth for Q1 2025, The Trade Desk’s long-term potential remains compelling. Its addressable market is estimated at 1trillion,dwarfingthe12 billion currently on its platform.
Given The Trade Desk’s track record of innovation and growth in a competitive digital advertising space, this earnings miss may prove to be a temporary blip rather than a sign of deeper issues. For investors willing to look past a single disappointing quarter, the stock’s current price could represent a buying opportunity.
e.l.f. Beauty: Slowing Growth and Trade Risks
e.l.f. Beauty has been a standout in the cosmetics industry, gaining market share with its affordable beauty products. However, the stock has lost two-thirds of its value in recent months, driven by concerns about slowing growth and its reliance on Chinese manufacturing. Management’s guidance for Q4 fiscal 2025 suggests net sales growth of just 2%, a sharp deceleration from previous quarters.
Despite these challenges, e.l.f. Beauty’s popularity remains strong. According to Nielsen data, the company has gained more market share than any other mass-market cosmetics brand in the past year. Additionally, its international sales surged 66% year over year in Q3, though they still account for only 20% of total revenue. This suggests significant room for growth outside the U.S., which could help offset domestic risks.
While trade tensions and slowing sales are legitimate concerns, e.l.f. Beauty’s brand strength and international expansion potential make it a compelling long-term investment. The stock’s recent decline may have created an attractive entry point for investors who believe in the company’s ability to navigate these challenges.
The Bottom Line
Five Below, The Trade Desk, and e.l.f. Beauty are all facing headwinds that have weighed on their stock prices. However, each company has a proven track record of growth and the potential to overcome its current challenges. For investors with a long-term perspective, these stocks could represent compelling opportunities to buy into strong businesses at discounted prices. While risks remain, the potential rewards make them worth a closer look.
