1 artificial intelligence (AI) growth stock to buy while it is still in stealth mode?

Ben McPoland reckons this stealthy AI growth share is a hidden gem and has now made it a high-priority stock to buy for his ISA.

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I’ve been searching for a new stock to buy that is set to benefit from the artificial intelligence (AI) revolution but is still relatively unknown. “Fat chance of that!” I hear an imaginary reader muttering.

Perhaps, but here’s what my ideal candidate would look like:

  • A company using AI in new and potentially powerful ways
  • Growing revenue rapidly yet already or nearly profitable
  • Very ambitious management team, ideally founder-led
  • A share price that isn’t sky-high and ridiculously overvalued
  • A market cap under $5bn

I know, I know! A stock that ticks all these boxes has to be as rare as unicorn manure.

Yet, incredibly, I think I’ve found one.

Quite the oddity

The stock in question is Oddity Tech (NASDAQ: ODD). This is an online consumer beauty firm launched in 2018.

Led by brother-and-sister duo Oran Holtzman and Shiran Holtzman-Erel, Oddity uses AI to develop brands and make tailored, data-driven product recommendations to customers.

It currently operates two digital brands: Il Makiage, which sells cosmetics, and SpoiledChild, which specialises in hair and skincare products.

The shares only went public in July 2023. However, at $46, they’re down 11% in this time.

Thankfully then, the AI hype train hasn’t yet arrived at this stock.

Oddity says it is “built to be the most impactful platform of our lifetime“. I’d say that counts as ambitious!

Intriguingly, the company’s market cap is just $2.6bn. For comparison, L’Oréal‘s market value is $266bn, or around 100 times larger.

Growing rapidly

In 2023, revenue grew 57% year on year to $509m while adjusted EBITDA rocketed 173% to $107m.

The firm beat its own guidance in every single quarter last year. And it generated $85m in free cash flow, exiting the year with $168m in cash and no debt.

Looking ahead, management expects Il Makiage to generate $1bn in sales over the next five years. And SpoiledChild, which grew 325% last year, with over half of sales from repeat customers, is on track for more stellar growth.

Meanwhile, its molecule discovery platform, Oddity Labs, is readying brands three and four in different categories. Fibroquin, its proprietary skin health molecule, apparently has a stronger efficacy than retinol (a standard ingredient in the beauty industry). This pricked up my ears.

Ticking all my boxes

Essentially, the company is aiming to disrupt the $430bn global beauty industry by replacing the in-store experience with AI and big data.

It claims – convincingly in my opinion – that 2bn data points from its 50m+ unique customers can recommend products better than the human eye of a beauty consultant.

However, this is still a young company. It only has two brands, so there’s a risk one or both could quickly fall out of fashion.

Also, there’s no guarantee the beauty industry will move mainly online. Look at groceries, for example. My local Tesco store was still packed at the weekend!

However, returning to my laundry list of requirements, we can see that:

  • Founder-led Oddity is using AI to try and disrupt a massive market
  • It’s growing very fast and profitably
  • The stock is trading at 27 times forecast earnings, which isn’t sky-high

I don’t think this exciting AI growth stock will be unknown forever. So I’m investing while it’s still flying under the radar.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Ben McPoland has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesco Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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