When stocks maintain consistent sales growth and high returns on invested capital over extended periods, they have the potential to generate significant returns through compounding. Let’s delve into some stock options that offer the opportunity for life-changing returns with the potential for substantial growth.
To identify these promising stocks, certain criteria must be met. Firstly, these stocks should have a long growth runway spanning possibly over a decade, supported by secular tailwinds or unique factors driving growth. Examples include opportunities in sectors like e-commerce or avenues for expansion such as entering new markets.
Secondly, a crucial factor is a proven track record of sustained growth. Stocks that have demonstrated an annual revenue growth of 20% over the past five years and have shown a 5% quarter-over-quarter sales increase in the latest earnings report were considered.
Lastly, future growth prospects play a vital role in the selection process. Looking ahead, the focus is on stocks that are projected to increase their earnings per share (EPS) by 20% annually over the next five years, indicating strong growth potential and positioning them as top contenders for significant returns.
Dutch Bros (BROS)
One standout candidate is Dutch Bros, a drive-thru beverage chain poised for remarkable growth potential. Dutch Bros offers a variety of customizable iced, hot, and blended beverages, with coffee accounting for half of its menu offerings.
The company’s strategic initiatives outlined at the ICR Conference 2024 position it as a prime candidate for substantial returns. Dutch Bros has been a catalyst for growth, doubling its total number of stores and quadrupling company-operated outlets since fiscal year 2019. This expansion has translated into a revenue surge from \(238.4 million in FY2019 to \)965.8 million in FY2023.
With 831 stores by the end of 2023, comprising 542 company-operated and 289 franchised outlets, Dutch Bros still has ample room for expansion as it continues to grow its presence across the U.S. The company aims to surpass 4,000 stores in the long run, with a focus on outlets offering drive-through convenience.
In addition to new store openings, Dutch Bros plans to enhance revenue generation from existing customers by leveraging its rewards program and implementing targeted promotions. Furthermore, the company anticipates improved operating margins through increased scale, targeting contribution margins exceeding 30%.
Given the combination of expanding store network and margin enhancement strategies, Dutch Bros emerges as a top contender for substantial returns. Analysts are optimistic about its growth trajectory, with a price target of $40 and a “buy” rating.
Shopify (SHOP)
Despite facing headwinds, Shopify retains its multibagger potential, positioning it as a compelling investment opportunity. As a leading Canadian stock, Shopify continues to attract attention for its growth prospects.
Shopify plays a pivotal role in empowering merchants to sell their products both online and offline on a global scale. Through its platform, merchants can efficiently manage their businesses and reach customers across various channels. While traditionally catering to small businesses, Shopify is now attracting larger brands, particularly through its Shopify Plus offering aimed at major retailers and brands worldwide.
By developing a modern retail infrastructure accessible even to large retailers, Shopify has garnered significant interest. Subscription-based businesses like Dollar Shave Club utilize the platform for sales, while industrial players such as Carrier Global leverage Shopify for their business-to-business transactions. Notably, renowned brands like Supreme are entrusting their e-commerce operations to Shopify.
Currently, Shopify ranks as the second-largest checkout platform in the U.S., trailing only Amazon. Its dominance in the e-commerce sphere has fueled impressive revenue growth, with revenue climbing by 26% in the latest reported period, accompanied by $905 million in free cash flow. As Shopify continues to target larger retailers and enterprises, its growth trajectory is poised to accelerate further.
Zscaler (ZS)
Janney Montgomery Scott identifies cybersecurity as a key growth sector for the upcoming decade. The escalating threat of cyber warfare by state actors and the utilization of AI by hackers have underscored the critical need for robust cybersecurity solutions. Projections indicate a compounded annual growth rate of 10.56% in the cybersecurity market between 2024 and 2028.
Zscaler stands out as a well-positioned stock with the potential for significant returns in the cybersecurity domain. The company has benefited from the Securities and Exchange Commission’s disclosure regulations implemented recently, alongside the surge in ransomware attacks in 2023. This trend has prompted Chief Technology Officers to prioritize cybersecurity investments.
Moreover, government entities are ramping up their cybersecurity defenses in response to the escalating threat landscape. President Biden’s executive order in 2021 mandated all federal agencies to adopt a zero-trust security architecture, a directive that favors Zscaler, given its approval by FedRAMP. Currently, Zscaler secures operations for 12 cabinet-level agencies.
Following a revenue growth of over 40% in the past five years, Zscaler’s growth trajectory shows no signs of slowing down. Management anticipates FY2024 revenues to range between \(2.118 billion and \)2.122 billion, reflecting a minimum 30% growth rate. With the sustained demand for cybersecurity solutions from governments and enterprises, Zscaler is well-positioned to capitalize on this trend for long-term growth.
As of the publication date, Charles Munyi held a long position in ZS and did not hold any positions (directly or indirectly) in other securities mentioned in this article. The views expressed are solely those of the author and are subject to InvestorPlace.com’s disclosure policy.
Charles Munyi brings a wealth of writing experience across diverse industries, including personal finance, insurance, technology, wealth management, and stock investing. His contributions span various financial platforms such as Benzinga, The Balance, and Investopedia.