There are a variety of approaches to investing in growth stocks. Latching onto the most compelling, high-profile names is likely the most popular, but there are a number of paths to prosperity. Successful investors know that sometimes it takes looking beyond the headlines and digging a little deeper to identify those opportunities that the average investor might overlook.
With that in mind, we asked three Motley Fool contributors to identify growth stocks with intriguing potential that might not be on the radar of most investors. They picked Shopify Inc. (NYSE: SHOP), Atara Biotherapeutics, Inc. (NASDAQ: ATRA), and Criteo S.A. (NASDAQ: CRTO).
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Helping companies set up shop online
Danny Vena (Shopify): Sometimes a stock has more going for it than a groundbreaking product, a new approach, or a novel solution to a problem. The best-case scenario is when a company can do all of these, while riding a broader secular trend to success.
E-commerce is undoubtedly one of the biggest trends around, expected to grow from $2.3 trillion worldwide in 2017 to more than $4.88 trillion by 2021. As gargantuan as those figures are, the simple truth is that online sales are still in their infancy. For the fourth quarter of 2017, e-commerce accounted for just 8.9% of total U.S. retail sales, more the double the 3.5% from a decade earlier.
Shopify is perfectly positioned to benefit from that trend by making it easier for businesses to establish an online presence without the need for major expenses or technical expertise. The company provides a plug-and-play solution that allows small and medium-sized businesses to customize a website that's right for their customers. The platform also handles many of the details like order tracking, payments, and invoicing, freeing entrepreneurs from these necessary but tedious tasks.
Image source: Shopify.
The company is succeeding by filling a critical need, as evidenced by the 609,000 merchants in 175 countries that avail themselves of Shopify's services. Some of its earliest merchants were so successful, the company expanded its services to include enterprise-level businesses. That offering struck a chord as well, and now hosts more than 3,600 big-name companies.
The stock has followed the company's success, skyrocketing 365% since Shopify went public in early 2015. The company has produced 11 consecutive quarters of year-over-year revenue growth that has exceeded 70%. It has yet to generate a profit due to its relentless focus on growth, but I believe this is positioning Shopify to succeed for years to come.
A biotech with best-in-class technology
George Budwell (Atara Biotherapeutics): Atara Biotherapeutics is a small-cap biotech stock that's seen its share price more than double in value this year. Despite this steep rise, however, I think this red-hot stock is still a strong buy.
The core issue is that Atara's off-the-shelf chimeric antigen receptor T cell (CAR-T) therapy called tabelecleucel could unlock the tremendous promise of this rapidly emerging field. Long story short, CAR-T developers Novartis and Gilead Sciences have had some serious problems commercializing their first-generation CAR-T therapies due to their intense manufacturing processes.
Atara's candidate, on the other hand, is far easier to manufacture, leading to quicker turnaround times for patients. As such, it's not surprising that biopharma heavyweights like Pfizer have been shying away from copying Novartis or Gilead's CAR-T platforms, and have instead begun to mimic Atara's more user-friendly approach. In fact, Atara may end up with the first CAR-T product that can be manufactured at scale to truly meet the intense demand for these groundbreaking therapies.
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Looking ahead, Atara is presently waiting on top-line data readouts for its two late-stage studies assessing tabelecleucel in Epstein-Barr virus-associated post-transplant lymphoproliferative disorders in patients who fail to respond to Roche's rituximab. If successful, the company plans on filing for the therapy's regulatory approval in Europe in 2019.
While there's no way to know for sure if Atara's novel pipeline can strike gold, the company is well-positioned to leapfrog some of its chief competitors if things do go as planned. As a result, I think it might be worth adding at least a few shares of this high-growth biotech stock to your portfolio right now.
A company adapting, not dying
Daniel Miller (Criteo): When investors pour their hard-earned cash into stocks, it's understood there's a certain amount of unavoidable risk. Successful investors are savvy about mitigating risk and, after a solid fourth quarter that eased some concerns, Criteo once again looks like a smart growth stock to own.
Criteo is a leading advertising technology company in the digital market space selling on a cost-per-click basis, enabling advertisers to develop multichannel, cross-device, and targeted marketing campaigns. Towards the end of 2017, however, the company faced adversity when Apple's intelligent tracking prevention (ITP) technology prevented Criteo from reaching Safari browser users, forcing management to temper revenue and adjusted EBITDA guidance.
Image source: Getty Images.
Criteo acknowledged the hurdle and was forced to adapt, adding 820 net clients during the fourth quarter and generating revenue excluding traffic acquisition costs (ex-TAC) of 20% in constant currency. Its adjusted net income jumped 47% to $82 million, quarterly cash flow from operations jumped 10%, and best of all, the better-than-expected fourth quarter helped ease concerns about Apple's ITP having a significant long-term impact.
It's quite possible the fears were entirely overblown, as many iOS users use browsers other than Safari. At a time when many were fearful of owning shares of Criteo, successful investors might have an opportunity to jump in on a solid growth stock selling for at a meager forward price-to-earnings ratio of 11.8, per Morningstar.com estimates.
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Daniel Miller has no position in any of the stocks mentioned. Danny Vena owns shares of AAPL, GILD, and Shopify. George Budwell owns shares of PFE. The Motley Fool owns shares of and recommends AAPL, GILD, and Shopify. The Motley Fool has the following options: long January 2020 $150 calls on AAPL, short January 2020 $155 calls on AAPL, and short May 2018 $85 calls on GILD. The Motley Fool recommends Criteo. The Motley Fool has a disclosure policy.