Growth stocks are typically associated with companies that are rapidly expanding, innovating, and capturing significant market share within their industries. These companies often channel most of their earnings to drive further growth, which ideally results in above-average revenue and profits.
For investors hungry for substantial capital appreciation, growth stocks are a must-have, offering the potential for extraordinary returns as they capture ever-larger market share. While growth stocks often come with higher volatility, their potential for dramatic returns over the long term makes them well-suited for investors with a long time horizon and a healthy appetite for risk, given the opportunities they provide for impressive portfolio gains over time.
Given this backdrop, let's take a closer look at three growth stocks that have recently blown past Wall Street’s earnings expectations.
Growth Stock #1: Workday
Commanding a market cap of roughly $68.9 billion, California-based Workday, Inc. (WDAY) offers a powerhouse enterprise software platform designed to revolutionize how organizations manage their most critical assets: Human Resources (HR) and finances. With artificial intelligence (AI) embedded at its core, Workday empowers businesses to elevate their workforce, supercharge productivity, and drive transformative progress.
Trusted by over 10,500 organizations worldwide, including more than 60% of the Fortune 500, Workday is the go-to solution for businesses aiming to stay ahead in a rapidly evolving landscape. According to Gartner (IT) market share research, Workday led the global ERP SaaS market in 2023, capturing an impressive 19.6% of the revenue.
Despite a 6.6% decline in Workday's shares on a YTD basis, the software provider rebounded impressively over the past three months, delivering a solid 22.2% gain that outpaces the broader S&P 500 Index’s ($SPX) 4.3% return during the same time frame.
Following the company’s fiscal 2025 Q2 earnings report on Aug. 22, which soared beyond Wall Street’s predictions on both the top and bottom lines, shares of Workday skyrocketed a notable 12.5% in the subsequent trading session.
Workday delivered revenue of around $2.1 billion, narrowly surpassing forecasts and marking a robust 16.7% year-over-year increase. This impressive revenue leap was fueled by a 17.2% annual increase in subscription revenue, which now makes up a hefty 91.3% of the company's total sales.
Its adjusted earnings of $1.75 per share not only beat expectations by a 6.1% margin, but also reflected a remarkable 22.4% growth from the previous year. During the quarter, Workday's operating cash flows surged to $571 million, up from $425 million in the same period last year, while free cash flows soared to $516 million, a notable jump from $360 million recorded in the previous year.
Beyond focusing on growth endeavors, the company actively returned value to shareholders by repurchasing shares worth $309 million in Q2. With $7.4 billion in cash, cash equivalents, and marketable securities as of July 31, Workday is well-positioned for continued growth and investment.
For Q3, the company’s subscription revenue is projected to come in at $1.96 billion, indicating 16% annual growth. Looking forward to fiscal 2025, management raised the company’s subscription revenue outlook to a range between $7.70 billion and $7.73 billion, marking an impressive 17% growth.
Additionally, the company is also projecting a steady non-GAAP operating margin of 25.3% for both the full year and the upcoming quarter, highlighting its strong financial stability and growth trajectory.
Analysts tracking Workday project the company’s profit to jump a remarkable 773.1% year over year to $2.27 per share in fiscal 2025 and rise another 38.8% to $3.15 per share in fiscal 2026.
Overall, Wall Street is optimistic, with a consensus “Moderate Buy” rating for WDAY stock. Of the 33 analysts in coverage, 22 advise a “Strong Buy,” two advocate a “Moderate Buy,” eight maintain a “Hold,” and one recommends a “Strong Sell.”
The average analyst price target of $290.16 indicates a potential upside of just 12.2% from current price levels. However, the Street-high price target of $352 suggests that WDAY could rally as much as 36.1% from here.
Growth Stock #2: CAVA Group
Washington-based CAVA Group, Inc. (CAVA) is a restaurant brand that blends healthy ingredients with bold flavors to disrupt the fast-casual segment. Going beyond the Mediterranean niche, the company competes in both the expanding limited-service restaurant sector and the health and wellness food market.
By catering to a diverse consumer across gender, age, and income levels, CAVA benefits from the growing shift towards healthy living and increasingly diverse consumer tastes. Valued at a market cap of around $12.7 billion, CAVA leverages its broad appeal and favorable industry dynamics to drive substantial growth opportunities.
Shares of this fast-casual restaurant company have rallied 160% over the past year, smashing the broader SPX’s 22.2% gain during this period. In 2024 alone, the stock is up 165.1%, easily dwarfing the SPX’s 15.7% return on a YTD basis.
After the Mediterranean restaurant chain disclosed its stronger-than-expected Q2 earnings results on Aug. 22, shares of CAVA soared a remarkable 19.6% the next day. CAVA’s revenue of $233.5 million blew past Wall Street’s forecast of $219.5 million, registering an impressive 35.1% year-over-year growth.
And despite a 19.1% annual dip, the company’s earnings of $0.17 per share shattered expectations by a 30.8% margin. Adjusted EBITDA soared to $34.3 million, reflecting a remarkable 59% year-over-year increase. Free cash flow also made a striking turnaround, reaching $22.7 million compared to the negative $12 million reported in the same period last year.
Amid a slowdown in visits for many restaurant chains, CAVA bucked the trend with a 9.5% rise in traffic in the second quarter. CEO Brett Schulman credited the success to the introduction of the new grilled steak option, which kept customers coming back. During the quarter, CAVA continued its rapid growth trajectory by expanding its footprint with 18 new openings, boosting its total to an impressive 341 restaurants.
Looking forward to fiscal 2024, management hiked its guidance, now projecting new restaurant openings to range between 54 and 57, while the same-restaurant sales growth forecast is expected to range between 8.5% and 9.5%. Additionally, restaurant-level profit margins for the entire year are forecasted to range from 24.2% to 24.7%, and adjusted EBITDA is expected to hit between $109 million and $114 million.
Analysts tracking CAVA Group expect the company’s bottom line to hit $0.43 per share in fiscal 2024, up 104.8% year over year, and climb another 18.6% to $0.51 per share in fiscal 2025.
CAVA stock has a consensus “Moderate Buy” rating overall. Out of the 14 analysts in coverage, seven suggest a “Strong Buy,” and the remaining seven recommend a “Hold” rating.
Although the stock trades at a slight premium to its average analyst price target of $111.55, the Street-high price target of $125 indicates expected upside of about 9.6% to current levels.
Growth Stock #3: Chewy
Florida-based Chewy, Inc. (CHWY) offers an unparalleled selection of pet products, supplies, and prescriptions. As a leading online source for pet needs, Chewy combines a vast inventory with competitive pricing and exceptional customer care, fostering strong brand loyalty and repeat business. The company continually innovates to enhance customer engagement through its user-friendly websites and mobile apps, allowing owners to manage their pets' health and wellness seamlessly.
Valued at around $12.1 billion by market cap, shares of this pet retailer have kept pace with the broader market in 2024, up roughly 14.4%. Over the past six months alone, CHWY stock is up 52.6%, crushing the SPX’s 7.6% return during the same time frame.
Shares of Chewy popped more than 11% on Aug. 28 after the company revealed its better-than-forecast Q2 earnings results. Net sales of $2.86 billion edged out consensus estimates, and reflected a jump of 2.6% annually.
The company’s adjusted EPS of $0.24 topped estimates by a solid 14.1% margin and demonstrated a notable 60% year-over-year improvement. In Q2, adjusted EBITDA soared to $144.8 million, marking a 64.3% annual leap, with adjusted EBITDA margin hitting 5.1%.
Furthermore, during the quarter, the pet retailer repurchased approximately 1.3 million shares for $32.7 million under its $500 million repurchase program, leaving $467.3 million in remaining capacity. With over $695 million in cash reserves and a debt-free status, the company is well-positioned for growth and shareholder returns.
Commenting on the company’s strong Q2 performance, CEO Sumit Singh said, “Chewy’s compelling value proposition is driving broader and deeper customer engagement, as reflected by our 20 million active customers, which grew sequentially in the quarter, and net sales per active customer of $565, which reached a new record for the company.”
On the Q2 earnings call, management guided for Q3 net sales to range between $2.84 billion and $2.86 billion, reflecting a 3% to 4% annual increase. For fiscal 2024, management backed a net sales outlook of $11.6 billion to $11.8 billion, reflecting 4% to 6% year-over-year growth.
Chewy also upped its full-year adjusted EBITDA margin guidance to 4.5%-4.7%, marking its second increase of the year and showcasing its effective strategy in enhancing the product mix and leveraging its business model for continued growth.
Analysts tracking Chewy expect the company’s profit to climb a notable 127.3% annually to $0.25 per share in fiscal 2024 and grow another 60% to $0.40 per share in fiscal 2025.
Overall, CHWY stock has a consensus “Moderate Buy” rating. Out of the 24 analysts in coverage, 12 suggest a “Strong Buy,” one gives a “Moderate Buy,” 10 advocate a “Hold,” and one recommends a “Moderate Sell” rating.
The average analyst price target of $29.79 indicates a potential upside of 9.7% from the current price levels. The Street-high price target of $35 suggests that CHWY could rally as much as 28.9% from here.
On the date of publication, Anushka Mukherji did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
