Consumer stocks get overlooked as potential moonshots. For whatever reason, individual investors tend to get their imaginations fired by small gold mining stocks, or obscure tech stocks that are about to become the next big thing…
New and trendy consumer products just don’t get the same kind of attention – even though when certain products or brands hit, oh man, do they hit.
You coulda bought Yoga pants company Lululemon (NASDAQ: LULU) for $50 bucks in 2017 and watched it run to $475 in 2022…
Two of the ugliest shoes ever made – Crox and those frumpy Uggs boots – made investors a fortune.
If you missed buying Uggs parent company Deckers (NASDAQ: DECK) at $5 in 2003 when Oprah endorsed them, you could still have bought the stock at $30 when Tom Brady got on board in 2010. Deckers stock hit $118 in 2011, and it’s over $900 today. Yeah, $900.
Crox (NASDAQ: CROX) ran from $6 in 2017 to $42 in 2019. But that was nothing. It hit $180 during the pandemic and currently trades at $135.
That stupid Pokemon game pushed Nintendo (NTDOY) from $3.50 to $11 in 18 months. I shouldn’t call it stupid – I had fun playing it with my kids – it just feels kinda stupid to invest actual money in consumer fads. Which is unfortunate, because as Peter Lynch once said – “buy what you know.” And since we’re all consumers, we should have a decent handle on products that are taking off in popularity.
Like, I vividly remember the Domino’s ads, where the CEO was inviting people to send in pictures of their crappy Domino’s pizzas. That was a turning for the stock. I even started buying Domino’s to take to the pool in the summer of 2012 because of those ads and the amazing three-topping pizza for $8.99 deals. The stock was around $35 then. I finally figured it out a couple years later with the stock around $100. It’s $440 today.
I also vividly remember the first time I saw the Apple iPod ad, the monochrome one featuring U2 – “Uno, dos, tres, quatorces – Hello Hello…” The stock was a split-adjusted $0.58 at the time…
I know, I know, it’s easy to get sucked in by the financial media’s constant fawning on tech stocks and ignore the mundane consumer product stocks. But, that’s why you can often still buy these stocks even as the fad driving their popularity gets pretty obvious.
Consumer Watch
I keep an eye on a few consumer stocks. Yeti (NASDAQ: YETI) for one, but I’ll tell you its growth has underwhelmed me over the last year. Furniture company Lovesac (NASDAQ: LOVE) though…aside from a truly great name, it’s got 45% earnings growth coming in its next fiscal year and at just under $23 a share, it has a Price-to-Earnings Growth (PEG) ratio of .54, which is pretty good (under 1 is considered cheap). All Lovesac is a pic of Tom Brady or Oprah lounging on one of its cool sectionals and that stock rolls.
Another one hit my radar recently – a Swiss shoemaker backed by tennis great Roger Federer called ON Holdings (NASDAQ: ONON). Not coincidentally, the shoes are called ON. Also not coincidentally, there is a “Roger” line of tennis shoes, you can buy the Roger Spin or the Roger Clubhouse (which would be my obvious choice).
ON Holdings seems to be getting the most traction(!) from its Cloudsurfer running shoes. At up to $180 a pop, that’s a lot of loot if these shoes get really popular.
ON Holdings is expected to do $2.7 billion in revenue this fiscal year (which ends in September) and $3.5 billion next year, which is pretty decent growth.
The one issue is that the company is definitely not under the radar. At $42 a share, it is valued at $13 billion which gives it a Price-to-Sales ratio above 11. That is not cheap. There is a lot of good news priced into the stock.
This morning, ON Holdings reported 29% revenue growth (to $658 million) from the same quarter last year. And it maintained its full-year guidance of 30% revenue growth.
While I’m not about to compare ON’s ~$3 billion in revenue to the $50 billion that Nike (NYSE: NKE) brings in, it should be noted that Nike sales have really stagnated while ON’s are growing really nicely. I’ll also note that Nike’s weak sales growth has been used to suggest that consumer spending, especially in Asia, has weakened. Could be that people would rather buy Coudsurfer shoes from ON Holdings (and other offerings from upstart shoe companies (like both Lululemon and Deckers).
It’s Gotta Be the Shoes!
Kinda funny – I just watched the movie Air last night, about Nike’s struggle to sign Micheal Jordan to a deal for the Air Jordan shoes. It features Matt Damon so you know it’s a pretty good film.
There’s a line in there where Nike founder and CEO Phil Knight says that giving Jordan a rev share on Air Jordan’s is pretty low risk because they’ve never sold more than $3 million worth of basketball shoes in a year anyway…
The first year of Air Jordan sales was $126 million. Total gamechanger for shoes. Jordan reportedly still rakes in $400 million in annual royalties from his namesake shoe.
Again – I am in no way trying to suggest that ON could have similar success as Nike. A couple endorsements from tennis players is not the same as a transcendent player like Michael Jordan. In fact, I recommended Under Armour (NYSE: UA) years ago when hype was high after it signed the likes of Steph Curry and Jordan Spieth and that was a disaster – partly due to the fact that Under Armour shoes were, um, not attractive. At all.
At least ON’s Cloudsurfer shoes look pretty good.
I’m hesitant to call ON Holdings a BUY right now, given its valuation. But if it sells off over the next 6 weeks, say to the low-$30s, I’d change my mind.
Cheers,
Briton Ryle
Chief Investment Strategist
Outsider Club
X/Twitter: https://twitter.com/BritonRyle
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