1 Growth Stock Down 75% to Buy Right Now

It looked like Revolve Group (NYSE: RVLV) stock was finally rebounding after a few tough years, but it's been sinking along with the market this year and is now about 75% off of its all-time highs.

That could scare off an investor, or it could spell opportunity. I see opportunity knocking. Here's why.

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The future of fashion

Revolve operates two fashion websites: Revolve and its high-end sister, FWRD. Both cater to the stylish, social media-savvy consumer, and the company works with celebrities and influencers to reach this crowd.

It's known for its event and party wear, but Revolve is expanding into many adjacent categories to deepen consumer relationships and generate higher sales. These categories include men's, shoes, and accessories, as well as an expanded assortment of women's wear.

Since it sells premium clothing but gears itself toward a consumer who's not necessarily affluent, sales were declining as inflation climbed. But the company is back to double-digit growth, with a 14% sales increase year over year in the 2024 fourth quarter. Profitability progress was even more impressive. Gross margin improved by 0.5 percentage points to 52.5%, and net income was up by 237%. Its full-price sales rate increased by three percentage points to 82% last year, driving expansion in its margins.

Revolve seized on an opportunity to invest in the FWRD brand as other luxury brands cut back in the difficult operating environment, establishing itself as a major player in this space. Average sales per active FWRD customer increased by double digits in the fourth quarter year over year, leading to an 11% increase in total sales for the brand.

As usual, the soft metrics tell a more complete story. Active customers increased by 5% to 2.67 million, and average orders placed were up 7%. Average order value was down 1% as customers bought cheaper items or products on sale. But they remain loyal to Revolve and are increasing engagement, even through the challenging inflationary period.

Ready for a breakout

Management touted its continued use of AI as a growth and efficiency driver last year. While everyone is using artificial intelligence (AI) more throughout their businesses, Revolve was built with AI from the very beginning, using it across its enterprise, from operations and merchandising through marketing and fulfillment. It noted that in many instances, its internal AI systems outperformed those of third-party vendors.

Revolve has several goals this year and going forward. It's focused on merchandising solutions, which generated strong results last year. For example, sales from its winter ski shop increased 850% this past year as it carefully curated a product assortment that resonated with its core customer base.

It's also beginning to enter physical retail, with its first metro shop set to open in Los Angeles. Revolve is not looking for a huge store footprint at this time, but it's experimented with pop-up shops, and this kind of destination serves to amplify its brand.

Revolve is continuing to invest in the luxury customer, where it sees opportunity as other luxury retailers experience pressure, and it feels that it has an edge over competitors due to its highly effective AI operations.

Priced to buy

At the current price, Revolve stock trades at a forward, one-year P/E ratio of 24, which looks like a good deal for a stock with loads of opportunity.

Revolve's model represents the future of fashion, and it continues to gain new, loyal customers who will drive future growth. The company is going through a challenging period, but it has thrived in better times, and it's still delivering profitable growth for shareholders right now.

Over the next few years, Revolve is likely to report higher growth and capture market share, and its stock price will reflect that.

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*Stock Advisor returns as of April 1, 2025

Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Revolve Group. The Motley Fool has a disclosure policy.