Every market selloff creates an opportunity to buy growth names at a big discount. Typically, investors start discounting growth when a crisis starts, so faster-growing companies sell off more.
Growth comes in a variety of sectors and can be measured in a few different ways. Besides looking at obvious big-cap tech names on a selloff, other growth names could deliver market-beating returns at today’s prices.
One such potential winner is Five Below (FIVE). The retailer that lists all its products for $5 or less could be a winner with high inflation and economic uncertainty right now. Yet shares have been knocked down enough despite 28 percent revenue growth and 19 percent earnings growth, leading to shares looking like a bargain that even analysts see as an opportunity now.
On a price-to-earnings-growth ratio, shares trade at 0.8, and any ratio under 1.0 looks attractive for a rebound in markets.
Action to take: Shares look undervalued here relative to their growth, and the retailer could be a surprising winner even in an economic slowdown. Investors won’t get paid a dividend while waiting for that rebound, however.
Traders may like the August $195 calls. Last going for about $8.45, the call options have a chance to move in-the-money on a rally in shares in the coming months, and could likely deliver mid-to-high double-digit returns.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.