1 week Ago By [email protected] (Jennifer Saibil)
The S&P 500 is still on a roll in 2025, up about 28% over the past year. However, the market does look inflated. The average S&P 500 price-to-earnings (P/E) ratio is almost 29, a three-year high.
Can you still find bargains on the market? Yes. Some beaten-down stocks could turn around soon as the bull market keeps thriving and inflation moderates. Streaming company Roku ( ROKU -2.
97% ) and cosmetics retailer Ulta Beauty ( ULTA -0.17% ) are two stocks with considerable long-term opportunity that are trailing the market's success. Let's take a closer look.
1. Roku: 84% off all-time highs Roku has been struggling to impress the market as it faces competition and finds profitability to be elusive. But it has a leading position in its category as the top streaming platform in the U.
S., Canada, and Mexico, and it's entering more international markets. The company continues to demonstrate robust growth in both of its segments, devices and platform.
The device business is sales of its streaming hardware, which makes streaming available on screens, with streaming-ready screens as well, and its platform business is mostly ad revenue on its free channels. The ad business is by far the bigger one, making up about 85% of the total in the 2024 third quarter. But the sales of devices are growing, too, and devices are the portal for viewers to get onto the platform.
Ad business is starting to pick up again after some inflationary pullback, and as Roku adds more member households and viewing hours, it gets more ad revenue. In Q3, accounts increased 13% year over year to 85 million, and streaming hours were up 20%. That means new hours aren't just coming from new accounts -- existing members are also engaging more on the platform.
Roku is making progress on profitability, too. Q3 was the third straight quarter of positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) and free cash flow. The company is still a ways off from net profitability, which isn't expected in 2025.
But it's claiming the top spot in its category and identifying new opportunities in a growing industry, and scale is getting it closer to positive net income. Streaming keeps growing as an industry, as demonstrated by Netflix 's recent blowout quarter. Roku stands to gain from the shift now and in the future.
2. Ulta: 26% off all-time highs Ulta is a top beauty retailer, featuring cosmetics, skincare, and hair care products, as well as services in its 1,400-plus stores. It has a huge assortment of products for every kind of budget, from luxury to mass brands, and the company's stock has been crushed as its core customers switch to cheaper goods.
It's still posting modest sales growth, with revenue up 1.7% in the 2024 fiscal third quarter (ended Nov. 2) and comparable sales up 0.
6%. Transaction growth was higher than ticket growth, underscoring customer loyalty offset by buying less expensive merchandise. This pattern is playing out more severely in Ulta's operating margin, which contracted from 13.
1% to 12.6% in the quarter. That was a continuation of a negative trend that's been going on since high inflation started in 2022.
The market hasn't been happy with how this is playing out, but Ulta has an effective model and a massive long-term opportunity. As the leader in its category, the company has an edge in the ability to meet shifting demand. Right now, it's identified wellness as an emerging trend, and it's incorporating that into its messaging and marketing.
Since Ulta already offers services, it can easily adapt to the increased demand for wellness in both product and service. Customers who come in for a service tend to also buy products, so it can achieve multiple goals with this framework. Ulta also already embraces the dominant growth models for beauty retailers today, specifically specialty beauty, the omnichannel strategy, and shop-in-shops, which it has in about 500 Target locations.
It's the natural platform for the beauty enthusiast to engage, and the beauty enthusiast accounts for the majority of sales in the industry. The group has doubled from about 70 million in 2021 to about 140 million in 2024. It has 44 million members and growing, and this group accounts for 95% of sales.
At the current price, Ulta stock trades at a forward one-year P/E ratio of under 17, and this is an excellent opportunity to buy this top stock on the dip..
