The market almost always rewards growth stocks through a higher valuation. These companies usually have strong momentum behind them, and investors tend to be very bullish on their prospects. However, over the past three years or so, the market hasn’t been quite as enthusiastic about all growth stocks. Many high-flying names have been left behind after the initial pandemic rebound.
I believe that is largely due to a temporary growth slowdown as the post-COVID economic boom cools off and monetary policy tightens. There are also some lingering ripple effects from the pandemic. But those factors present a smart buying opportunity. Investing in these stocks before they regain momentum could lead to significant upside. The market will likely re-evaluate them at a higher multiple once their attractive growth trajectory returns. Let’s take a look!
Arcos Dorados (ARCO)
Arcos Dorados (NYSE:ARCO) is the world’s largest franchisee of McDonald’s (NYSE:MCD) restaurants. This Uruguay-based company mainly operates across Latin America, overseeing over 2,300 locations. After a few years of declines, Arcos was hit hard early in the pandemic, causing its stock to plunge. However, over the past year, shares have come roaring back — soaring nearly 320% from COVID-era lows.
What changed? The company delivered multiple earnings beats while recovering far better than expected as regions reopen. Yet despite its surge, I still see a sizable upside ahead. Even after the run-up, ARCO trades at just 16x forward P/E. That’s while 2024 EPS growth is expected to be at 14%, then accelerate to 28% by 2025. Revenue growth should also impress, clocking in around 20% this year.
Yes, Arcos holds over $1.6 billion in debt, concerning rising rates. But with over $250 million in cash and $60 million in profits last quarter alone, I’m not worried about its ability to pay this down, especially as rates decline. With travel and dining still rebounding post-COVID, Arcos has ample room to expand margins and deliver further upside.
Las Vegas Sands (LVS)
Las Vegas Sands (NYSE:LVS) is another pandemic recovery play I’m bullish on. As one of the most-visited cities globally, Vegas was devastated early in the pandemic. And as a major casino operator, LVS felt immense pressure. Revenue plunged from nearly $14 billion pre-pandemic to just $3 billion in 2020. Losses ballooned to over $1.7 billion, but recovery is now in full swing.
Last quarter, LVS delivered $2.8 billion in sales and over $1 billion in EBITDA. While the stock bounced back somewhat, shares still trade nearly 30% below their 2019 peak. Yet analysts expect EPS to double by 2026, then nearly double again by 2032. Despite rosy projections, LVS trades at just a 17x P/E multiple on 2024 earnings.
I expect further upside as travel normalizes and Vegas visitation approaches pre-pandemic levels once more. International tourism should also rebound in coming years as COVID fears continue fading. With momentum accelerating and decades of proven operating history, LVS offers an attractive risk-reward profile at current valuations.
Wynn Resorts (WYNN)
Wynn Resorts (NASDAQ:WYNN) is another underpriced Vegas-centered recovery play. After plunging to under $50 during the pit of COVID, shares quickly rebounded to over $137 within a year. But the stock has lost substantial ground again, now trading 34% below its peak at $91.
I believe most of the pain is now priced in. After heavy losses in 2020 and 2021, WYNN is projected to rebound to over $3 in EPS this year. And earnings growth should only accelerate from here, with EPS potentially reaching $16 by 2032. Though its historical price chart may not seem too glamorous, estimates imply immense growth ahead.
Plus, I don’t foresee any impending hurdles with travel still recovering globally. If anything, pent-up demand for experiences and tourism points to tailwinds for operators like WYNN. And with shares trading at just 16x 2025 earnings against a bright growth backdrop, I see the risk-reward skewing positively at current levels.
Note: The stocks in this article also yield 1.3%, 1.6%, and 1.1%, respectively.
On the date of publication, Omor Ibne Ehsan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.