1 Stock Down 63% to Buy Right Now

Is it getting harder to find bargains in the market? The S&P 500 is up 72% since its lows in 2022. That's an incredible rise in a short amount of time, and stocks have been rising to valuations that match. But not all stocks are hitting highs.

Many companies are still feeling the effect of high inflation, and it's showing up in their stock prices. As inflation cools, though, things look like they're starting to change, and now could be an inflection point. Consider e-commerce fashion retailer Revolve Group ( RVLV -4.



46% ) . It just released an outstanding third-quarter earnings report, but even though the stock jumped on the news, it's still down 63% from its highs at the time of this writing. Let's dive in and see why it's up, and why it could be a great candidate for a growth-oriented portfolio.

The artificial intelligence (AI) difference Revolve is an e-commerce superstar that sells high fashion through two web sites: Revolve, and its haute couture site, FWRD. It has figured out a formula for selling clothing that hits its target market in the right place, built on an AI and machine learning infrastructure that supports all of its operations. Another way Revolve stands out is its focus on social media and influencer marketing, which has been a pillar of its strategy from the beginning.

The concept is resonating with Revolve's market, and customers love it. Throughout the entire period of pressure, with lower sales and profits, Revolve continued to add active customers, even if average order value was lower. Now the business is back on the upswing, and it had a blowout third quarter.

Sales increased 10% year over year, and earnings per share (EPS) more than tripled from $0.04 last year to $0.15 this year, crushing analyst expectations of $0.

10. Active customers increased 5% over last year, total orders placed were up 3%, and even average order value inched up 1%. Those metrics paint a more complete picture of what's happening at the company and how people are engaging.

Management attributed much of the performance to efficiencies across the board, driven by the AI systems. Marketing spend and logistics efficiency led to significant cost savings, and the AI part helps it fine-tune its merchandising and marketing to reach the right customers. It has also lowered its return rate, which has been weighing on its margins.

It launched several initiatives to bring it down, including a better size and fit tool, which has led to lower return rates and also higher conversions. This is one example of how Revolve leverages its AI and tech expertise to create meaningful improvements. This wasn't a one-time, fluke performance.

It's the result of better operational systems, a niche market that it knows well, and moderating inflation. Revolve is still a fairly small operation, with just over $1 billion in trailing 12-month sales, and it has a long growth runway as it captures market share. Is the price right? I'll admit that Revolve's price has already jumped even higher while I was in the middle of writing this, and it's getting to a price that looks expensive.

The forward, 1-year price-to-earnings ratio went from about 35 for the past few weeks to 43. I see that as a preferable valuation metric to the trailing P/E ratio because of the rebound in net income, and the likelihood that it will stay at these levels and grow. 43 could still be reasonable for a high-growth stock, but I wouldn't call it cheap.

If Revolve's business does continue to accelerate, this could still be called a good deal. If you're looking for the best entry point, that might have passed. Alternatively, if the market takes a dip, you might get a better opportunity.

But you can't time the market. Looking down the road five years or longer, Revolve is likely to be reporting healthy sales and profits, and its stock should move higher accordingly. If you have a long time horizon and are looking for a strong growth stock, consider adding Revolve to your holdings.

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