Uncovering Five Outstanding Expansion Stocks Worth Investing in for 2025
As the year draws to a close, there's an air of optimism on Wall Street. Inflation has dwindled down to levels below 3%, the Federal Reserve is reducing interest rates, and the S&P 500 has seen a 28% increase year to date.
Will the market carry on its upward trajectory next year, or will it plummet? It's impossible to predict with certainty. Therefore, investors should stick to the classic, sound strategy of purchasing reasonably priced stocks of companies with exceptional growth potential.
Given the market's inflated valuations, particularly for growth stocks, there might be a rush towards safe stocks and dividend stocks soon. However, there are still reasonably priced growth stocks worth investing in for the long term. Here are five fantastic options.
1. Robinhood: Leading the way in online banking
Nowadays, almost everyone is conducting at least some of their banking online, and banks offering user-friendly digital services are gaining market share. SoFi Technologies (SOFI -0.07%) boasts a comprehensive digital financial app that's winning over new customers at a great pace, and its strategy of cross-selling a diverse array of solutions is boosting customer engagement.
Its numbers don't lie. Revenue climbed by 30% year over year in the third quarter, and net income skyrocketed to $58 million after posting a $276 million loss in the previous year. Indeed, the third quarter was its fourth consecutive quarter with positive net income.
The strength lies in its members. SoFi added 756,000 new members in that quarter alone. Its primary target customer base includes students and young professionals - individuals with long-term income growth potential and evolving banking needs.
SoFi continues to expand and scale up its platform, and it's likely to continue doing so in 2025 and beyond. SoFi stock trades at a forward P/E ratio of 66, which might be pricey, but it could be a fair valuation for a standout growth stock.
2. Nubank: A rising financial giant
Nubank (NU -0.04%) follows a similar model to SoFi's, but it operates in Brazil, Mexico, and Colombia. It's already one of the biggest banks in Brazil, with 56% of the adult population as customers, but it's been adding millions of customers every quarter across all its markets.
The growth story has been nothing short of remarkable. Revenue leaped by 56% year over year to $2.9 billion in the third quarter, and net income more than doubled to $553 million. It added 5.2 million customers, reaching a total of 109.7 million, a 23% increase over the previous year.
Although Nubank's stock had been soaring for a while, it's seen a dip recently due to investor concerns about prolonged inflation and economic volatility in Brazil. That's understandable: Nubank's results have been affected by conditions in Brazil in several ways, including net interest margin compression and slower growth in average revenue per active customer.
However, these are temporary concerns, and Nubank could recover in 2025 and become a top long-term investment. Nubank stock trades at a forward P/E ratio of less than 20, which is a bargain.
3. Lemonade: Revolutionizing insurance
Lemonade (LMND -1.44%) went from market favorite to a stock that investors shunned. But lately, it's regained investor favor by demonstrating robust growth and an improving loss ratio.
In-force premiums - a typical top-line metric for insurance companies - increased by 24% year over year in the third quarter, while customer count increased by 17% to 2.3 million, and premium per customer grew by 6%. Investors have been waiting for the company's loss ratio to improve, and it has, falling by 10 percentage points year over year, a significant improvement. Lemonade is still reporting net losses, but as its loss ratio drops and profitability improves, the stock should continue to rise.
Investors might be hesitant to buy a stock that's already up 191% this year, but Lemonade ended 2024 more than 90% off of its highs, so there's plenty of room for further gains. Lemonade is just starting its journey, and it has a technological edge over legacy insurers. The stock could continue to rise in 2025, and it could be a phenomenal investment over the next few years.
Lemonade stock trades at a price-to-sales ratio of 6.7, which isn't excessive given its potential.
4. E.l.f. Beauty: Tapping into trends in cosmetics
E.l.f. Beauty (ELF -1.16%) might be one of the fastest-growing cosmetics companies today. It's gaining market share in the makeup and skincare markets, and generating customer loyalty and sales for its budget-friendly, trendy products.
Sales soared by 40% year over year in the third quarter. That's impressive by itself, but even more so considering that it managed to achieve this growth in a challenging environment where many industry stalwarts are struggling. Consumers are generally cutting back on non-essential purchases, and if they do need cosmetics, many are opting for cheaper alternatives.
E.l.f. is reporting strong growth, and it's also profitable. Net income has been relatively low as the company works to promote its products in a challenging environment, but it's still positive.
E.l.f. is building its brand and forging strong connections with its customers. It has a vast opportunity to challenge the leaders in every category, and 2025 could be a bounceback year. The stock trades at a reasonable 32 times forward 1-year earnings.
5. Revolutionize: Disrupting Fashion with Artificial Intelligence
Remember Revolve Group (RVLV 1.32%)? It might not be a household name, but it's making waves in the fashion industry, snatching market shares from industry giants and bouncing back from a few quarters of financial turbulence due to inflation. The third quarter saw a 10% surge in sales, and net income skyrocketed by an impressive 238%.
The company operates purely online and leans heavily on artificial intelligence for its operations. It collaborates with social media influencers and celebrities to promote its luxury apparel, and amidst a challenging landscape for consumer discretionary businesses, it's still pulling in new active customers.
Revolve's stock is showing signs of a comeback following a challenging year, and it seems poised to maintain its growth trajectory well into 2025 and beyond. With a low price-to-sales ratio of 2.4, the stock looks like a steal.
In light of the market's potential continuation of its growth, investors might consider diversifying their portfolio with reasonably priced growth stocks like SoFi Technologies, which has seen impressive growth and positive net income. On the other hand, Nubank, another growth stock, has seen a dip in price due to investor concerns, but its low forward P/E ratio could make it a worthwhile long-term investment.
