2 Growth Stocks Wall Street Might Be Sleeping On, but I'm Not

The current bull market has been fueled by a handful of stocks known as the "Magnificent Seven," which have outperformed the S&P 500 and taken over the spotlight over the last two years.

However, there have been other winners that have flown under the radar or have yet to get the attention they deserve, especially from Wall Street.

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Keep reading to learn about two underappreciated stocks that could be big winners.

1. Dillard's

Dillard's (NYSE: DDS) might be the best-performing stock you've never heard of. The Arkansas-based department store chain is up 670% over the last five years as an aggressive share buyback program and a number of behind-the-scenes competitive advantages have driven phenomenal growth for an otherwise sleepy-looking business, especially at a time when its department store peers have flopped.

Dillard's has succeeded in part with a best-in-class inventory management software that has allowed the company to avoid the kinds of markdowns that have plagued its rivals and can often make or break retailers' margins.

The company is also differentiated because it owns a construction business, and management has taken a more conservative approach to e-commerce, which tends to deliver lower margins than in-store sales. The latter still make up more than 85% of Dillard's total retail revenue, according to various estimates.

Management has also reduced working hours, saving money on labor. But share buybacks, which took advantage of the company's cheap valuation, have also played a major role as well. While the pace of share buybacks has slowed, the company has reduced its share count by nearly 40% in the past five years, as you can see below.

Data by YCharts.

Currently, Dillard's still looks cheap at a price-to-earnings ratio of 12, though revenue and earnings per share were both down in the fiscal 2024 third quarter. Still, the company's gross margin remains strong for a retailer at 45%.

If Dillard's can return to growth, the stock could have more room to rise, especially if it accelerates share buybacks again.

2. Coupang

E-commerce stocks like Amazon have been big winners for years, but Coupang (NYSE: CPNG), South Korea's largest e-commerce platform, is far from a household name outside its home market.

The company went public in Mar. 2021 during the height of the pandemic stock boom, but almost four years later, it still trades below its IPO price. However, it's gaining traction thanks to steady growth and improving profitability.

Coupang is following a similar strategy to Amazon. The company has evolved from a direct online seller to add on several higher-margin businesses, including a third-party e-commerce marketplace, video streaming, and food delivery. It also has a membership program similar to Amazon Prime called Rocket Wow, which is helping to drive growth.

The company benefits from operating in South Korea, one of the most densely populated countries in the world that also has some of the fastest internet speeds. That makes delivery much easier and more affordable. In fact, Coupang offers both same-day delivery and dawn delivery, meaning customers can place an order by midnight and receive it by 7 a.m. the next day, creating a compelling value proposition for customers.

The company has delivered steady growth on the top and bottom lines, and it has a lot of potential as it expands to new businesses like food delivery. Revenue rose 27% year over year to $7.9 billion in Q3 2024, and gross profit was up 45% to $2.3 billion as its gross margin jumped 350 basis from the year-ago period.

Coupang also took a risk by acquiring Farfetch for $500 million last year, taking over the ailing online fashion platform. The addition has allowed Coupang to better target the luxury market (and its higher profit margins) while gaining more exposure to global e-commerce.

Over the long run, Coupang looks like a good bet that can follow in the footsteps of e-commerce leaders like Amazon and MercadoLibre to deliver steady growth. As it does, the stock should respond by moving higher.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jeremy Bowman has positions in Amazon and MercadoLibre. The Motley Fool has positions in and recommends Amazon and MercadoLibre. The Motley Fool recommends Coupang. The Motley Fool has a disclosure policy.