The three stocks below are up 20-fold. On its own, that's no big deal. Stocks tend to increase in value over time, so historically, securing a 20-fold return has merely been a matter of buying decent stocks and waiting, say, 35 years. But the stocks below have returned that much in just five years.
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Perhaps that's a sign that demand for growth stocks has turned frothy. Each company carries a price-to-earnings ratio that's more than double the broad market average. Bearing worrisome resemblance to 1999, two of the three are Internet businesses. But each company also boasts soaring sales and profits and has vast potential for expansion, leading some on Wall Street to recently declare their shares bargains despite the run-up in price.
5-Year Gain: 2,129%
Forward P/E: 28
Five years ago, few investors would have guessed that Priceline.com (NASDAQ: PCLN - News) would soon have a higher nominal price than Google (NASDAQ: GOOG - News). The Name-Your-Own-Price travel specialist then sold for $24 and change per share. The search giant fetched more than $400 a share. Recently, Priceline changed hands at $534 a share, about a dollar more than Google. What happened? The company might be in an economic sweet spot where consumers are once again spending on travel but vendors still have excess inventory to sell cheaply. Four-fifths of Priceline transactions are for hotels, and hotels have occupancy rates of around 60%. Also, rival ticket bookers have been feuding with big air carriers over fees and pricing. American Airlines late last year pulled its listings from Orbitz.com, and in January, Expedia.com (NASDAQ: EXPE - News) booted American. Priceline might be less of a profit threat to carriers because it specializes in excess inventory. American in January referred former Expedia users who want to compare flights to Priceline.com and Kayak.com. Add a dose of strong overseas growth, and Priceline's sales are expected to jump 30% this year. "We view Priceline as the best positioned travel stock given its limited direct exposure to airlines and given its leading position in the European and Asia/Pacific hotel markets," wrote Clayton Moran, who covers the stock for Benchmark Capital, in a late March note to clients.
Green Mountain Coffee Roasters
5-Year Gain: 2,217%
Forward P/E: 52
If Folgers or Chock Full O' Nuts traded as stand-alone companies — they're owned by JM Smucker and Italy's Massimo Zanetti, respectively — they'd unlikely fetch more than 20 times earnings. Coffee is a staple, after all, and staples aren't characterized by explosive sales growth. So why do shares of Green Mountain Coffee Roasters (NASDAQ: GMCR - News) sell for more than 50 times earnings? How good can a cup of coffee be? The company's recent success — its shares languished during the 1990s but took off starting around the time of the dotcom stock bust — is more about coffee delivery than the coffee itself. It has offered coffee in single-serve K-Cups, used in coffee brewers made by Keurig, since 1997. In 1998, Keurig began placing its brewing machines in offices. In 2006, Green Mountain bought Keurig. Last month, the company inked a deal to package Starbucks (NASDAQ: SBUX - News) coffee in K-Cups. Single-serve coffee machines are ubiquitous in offices but are less common in homes. Green Mountain hopes to remedy that with sub-$100 machines sold through Starbucks. Caffeine addiction and laziness suggest it will find success. Wall Street expects the company's sales to jump 81% this year and 38% next year.
5-Year Gain: 2,513%
Forward P/E: 60
Baidu (NASDAQ: BIDU - News) is the Google of China. Why isn't Google the Google of China? The simplest answer is that it left China just over a year ago after a falling out with the government there over censorship and evidence that hackers had been spying on its email users. But Google also failed to topple Baidu's leadership position in five years of operating Google China. Mysterious technical difficulties might have played a part. Goggle documented instances of users typing Google's China address and being rerouted to Baidu's site. Whatever the reason, Baidu now dominates the world's largest Internet market. It has yet to monetize more than half its traffic. Cynthia Meng, who covers technology stocks for investment bank Jefferies Hong Kong, calls the stock her top pick. "Baidu enjoys a very high entry barrier, limited competition, a growing market with still low [small and midsize enterprise] online marketing penetration, and an early opportunity in mobile search," she wrote in an April 12 research note. Wall Street expects Baidu's sales to swell 62% this year and 48% next year.