The key to successful stock market investing is finding the stocks that boast not only strong historical growth but, more importantly, above-average growth in the years ahead. The following three growth plays not only have unbeatable records but are likely to continue growing at high rates for years to come.
A Surprising Brick-and-Mortar Retail Play
Thanks to the rise of e-commerce retail, many brick-and-mortar retailers are struggling or are finding themselves in outright decline.
Between 2014 and 2018, the discount retailer's top line grew at an annualized rate of 23%, rising from $680.2 million to $1.56 billion.
Even better, a sizable chunk of this growth came not from new store openings but from comparable store sales increases over the years in question, where they rose at a solid 20.7% clip. That’s not to say the company hasn’t been expanding its footprint: The number of locations owned by the company jumped from 366 to 750 from 2014 to year-end 2018.
With strong sales has also come a robust bottom line. Net income more than tripled over this time frame, rising from $48 million to $149.6 million. Operating cash flow has also been noteworthy, growing from $61.4 million to $184.1 million.
For its 2019 fiscal year, Five Below expects full-year sales to have grown a further 18.4% to $1.85 billion. A 20% jump in store count to 900 units was instrumental to this success, while the company’s comparable-store sales rose a modest 0.6%. Net income for the year should be up 16.1% year-over-year, while operating cash flow should experience a similar increase.
So, why do we think Five Below will be a winner in 2020?
With the new year now underway, the company has said its unit count will grow another 20% during the year. If they’re right, it will bring Five Below’s store count from the 900 it’s at today to 1,080. With an average net investment per store of only $300,000, it’s safe to say Five Below has found a growth formula for success that shows no signs of stopping.
The E-Commerce Juggernaut
When it comes to growth, no company is more famous than Amazon.com, Inc. (NASDAQ: AMZN). Since its inception, the company has expanded globally, and every year it sucks in more and more of the world’s retail dollars.
In the five years ending in fiscal year 2018, revenue nearly tripled from $88.99 billion to $232.89 billion. Financial figures have not been provided for its 2019 fiscal year yet, but in the first three quarters of last year, revenue totaled $193.09 billion. Year-over-year, this represents a year-over-year increase of 20.3%.
Of course, not all of this growth came from Amazon's e-commerce operations. In the last three quarters reported, its Amazon Web Services segment saw revenue soar by 37.6% from $18.23 billion to $25.07 billion. AWS’s growth was almost double the growth rate of the company’s North America retail segment and is almost triple the growth of its International segment’s top-line expansion.
Amazon’s stock has been — and probably will continue to be — a winner not just because of its hypergrowth, but also because it’s finally making money. Improved economies of scale, combined with the company’s high-margin AWS segment’s expansion, has pushed the company from a net loss of $241 million in 2014 to an operating profit of $10.07 billion in 2018.
On a trailing 12-month basis, net income is even higher at $11.35 billion compared to the $8.9 billion seen at the same time last year. While net income is generally a good measure to look at, for a firm like Amazon, a better one is operating cash flow.
Over the same five-year period, this metric jumped from $6.98 billion to $30.72 billion. During the past 12 months, the figure has totaled $35.33 billion. This compares favorably to the $26.6 billion seen in the same time frame a year earlier.
Amazon’s growth shows no signs of slowing, and sometimes the best thing to do in investing is to keep betting on the winning horse. Therefore, we urge all growth investors to pick up a few shares as Jeff Bezos & Co. continue their quest for world domination.
Disrupting Finance Is The Best Growth Story of All
As the world grows and the internet expands to connect everyone on it, payment processors stand to reap immense gains. One company at the forefront of this movement is PayPal Holdings Inc (NASDAQ: PYPL).
Though PayPal is sometimes seen as an incumbent at risk of falling behind amid competition that’s popping up on all sides, this perception couldn’t be further from the truth. If anything, the business has thrived — and will continue to thrive — in this environment because the flurry of M&A activity in payment processing gives management the ability to acquire emerging threats. The latest example of this is its $4-billion acquisition of the discount site Honey.
To see this in action, we need only consider the past five years. Since 2014, revenue at PayPal has soared 92.5% from $8.03 billion to $15.45 billion. Revenue in 2019 is up 14.1% year-over-year.
On the bottom line, growth has been even more robust. Over the past five years, PayPal has seen its net income skyrocket 78.1%, rising from $1.16 billion in 2014 to $2.06 billion. Operating cash flow has followed suit, but its track record is even more impressive.
Between 2014 and 2018, the metric more than doubled, jumping from $2.22 billion to $5.48 billion. So far for 2019, earnings are up another 32.5% compared to the first three quarters of 2018, while adjusted operating cash flow is up 6.4%. That's an increase of 147%, or 25.4% per year.
With the industry poised to continue its historical growth rate of 6% per year through at least 2023, PayPal’s large market presence will ensure it has the opportunity to take part in this vital period of expansion.
Growth isn’t always easy to come by this late in the economic cycle. That’s what makes Five Below, Amazon and PayPal so unique. All three are stocks that any growth investors should strongly consider adding to their portfolios for the year ahead.
The 1 Stock We Like More Than Amazon
Motley Fool co-founder David Gardner shocked the world when he recommended buying a little online bookseller named Amazon back in 1997 at $3.19. Since then, he and his brother, Motley Fool CEO Tom Gardner, have tripled the stock market’s return over the last 17 years. Best of all, they’re about to do it again with a new stock pick that could be like buying Amazon at the very beginning. Click here for all the details.
Photo courtesy of Amazon.