A large part of the United States economy is made up of what the everyday consumer chooses to buy. Therefore, keeping an eye on where consumer dollars are flowing can provide investors with a surefire roadmap to success.
During the past year, inflation in the U.S. has run rampant, reaching levels not seen in over 40 years. As everyone feels the effects of this economic phenomenon, and each dollar is harder to stretch, consumption trends are sure to change. That's why investors can expect a new bull run in cyclical consumption stocks.
Looking at the recent rebound in the consumer confidence index, investors can look at the following three companies. Each is a market favorite, and buying one or more of these stocks can create the opportunity to 'sit back and relax' while the gains roll in.
Dutch Bros Inc.
Dutch Bros Inc. (NYSE: BROS) is one of a few select names that dominate the coffee market. BROS stock has been overshadowed by other names like Starbucks (NASDAQ: SBUX). However, Starbucks faces some internal problems with potential unionization and other investor concerns. That may be why markets and analysts are increasingly excited about Dutch Bros.
The second quarter earnings results for Dutch Bros were everything investors would want to see. The company posted a 25% increase in total store count, signaling aggressive expansion and market product adoption. It also reported a staggering 34.1% net revenue increase over the year.
Dutch Bros analyst ratings are pointing to a consensus 21.5% upside potential from today's prices. Analysts may be excited about management's 2023 full-year guidance, which indicates an additional 150 stores opening and expanding margins throughout the business.
Now that the company has broken through its rough 'growth stage' period, investors can expect this business to generate steady and consistent net profits for years to come. Analyst earnings projections are shooting for approximately 75% earnings per share growth in the next twelve months.
Since earnings typically drive stock valuations, a 75% increase in EPS may drive a similar-sized rally in the stock price, not something that seems unrealistic for a business growing so aggressively.
Who does not love a stock with double-digit upside potential from analysts? Wingstop (NASDAQ: WING) is one of those stocks. The consensus analyst rating for WING stock shows a 16.5% upside from today's prices.
The technicals show why there is such good sentiment around this name. The stock has just reached a respected support level of $160 to $170 a share, and markets are rewarding it with a high enough valuation to push it back into its previous peak.
The new wave of consumer confidence is also entering Wingstop's financials. The company's latest quarterly results will showcase a few bullish developments that may raise the stock price. The most significant of these is a 16.8% revenue growth rate that blew past economic inflation rates during the period.
Similarly to Dutch Bros, management has reacted to improving demand and other conditions by opening up 50 new locations during the quarter. The company is also guiding to another 240 to 250 locations added by the end of 2023.
Analysts are pointing to 10% to 12% net revenue growth in the next year, and the company announced its first-ever share repurchase program, starting at $250 million. This is why insiders are beginning to rush into the stock.
One of the first things a confident consumer looks to buy is a vehicle. In that buying process, consumers frequently purchase their fair share of after-market products. And XPEL (NASDAQ: XPEL) is one of the companies that provide those products to auto dealers.
XPEL is proving to be well-positioned in the new consumption wave. Analysts are rewarding the stock with a consensus price target that shows a hefty 13.5% upside from today's prices. And the company is showing a growth pattern similar to Dutch Bros. and Wingstop.
The second quarter 2023 financials look like XPEL is on its way to keep riding this new trend. Sales advanced by as much as 21.9% over the past twelve months. Plus, improving supply chains and commodity prices enabled the company to see a gross margin of 43%, which is attractive for a company this size.
A net income growth rate of 32.3% is enough to attract investor attention. However, they will likely be more excited about next year's earnings projections. A further 32% advance in EPS is expected for 2024, quickly compounding the stock's potential to nearly double by next year.