High-growth stocks can be a great way to boost your portfolio's returns, but you need to look for companies that balance their fast-paced growth with the potential to be an excellent long-term investment.
To help you find a few high-growth stocks that are more than just a flash in the pan, we asked three Motley Fool contributors for top-performing stocks that still have plenty of room to grow. They came back with Momo (NASDAQ: MOMO), Carvana (NYSE: CVNA), and PayPal Holdings (NASDAQ: PYPL). Here's why.
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Don't sweat the social media cool-off
Nicholas Rossolillo (Momo): Social media is, for the most part, beginning to look more like a maturing industry than fresh high-growth territory. New user additions are slowing around the globe, and many social media platforms are transitioning to profitable growth instead of growth at all costs.
China's social, entertainment, and dating app Momo is no exception to the slowdown. Granted, revenue increased 51% in 2018 and 35% to kick off the first quarter of 2019; and management's outlook for the second quarter is for another 27% to 30% year-over-year increase -- by no means sluggish. But the company has posted deceleration in its top line pretty consistently the last two years. That has caused the stock to wax and wane inconsistently and has given investors some fits.
For the foreseeable future, though, Momo is still in double-digit expansion mode. While it isn't the torrid north-of-50%, like in days past, Momo's shallower trajectory is nothing to get too upset about. That's because this social platform is only just beginning to turn that revenue growth into profits. Expenses have surged in the last year (up 83% in the first quarter alone) due to higher employee head count from its acquisition of dating service Tantan last year and other compensation to entertainment partners. That led to a 5% decline in adjusted earnings to kick off 2019.
However, as Momo's business continues to mature and the Tantan acquisition gets fully integrated, those expenses should begin to moderate. As they do, the bottom line should start to show signs of life once again. Trading at a mere 15.4 times trailing 12-month free cash flow, this high-growth social media stock could soar higher.
An incredible track record for growth
Daniel Miller (Carvana): If you're looking for a growth stock, you're doing your research a disservice if you don't glance at Carvana, a used-car retailer focused on its online platform and unique vehicle vending machines. It has a track record of incredible growth in just about every key metric, and it could continue soaring in the years ahead as it enters additional markets and expands its services.
Back to the topic at hand: growth. Carvana posted its first-quarter 2019 results in May and revealed an impressive 99% increase in retail units sold, which drove revenue 110% higher. What's more impressive is that this was its 21st consecutive quarter of triple-digit growth.
That top-line growth, along with improving gross profit per units (GPU), helped boost total gross profit by 159%. The used-car retailer has only been public since April 2017, but investors are buying the growth story, and its stock has surged 448% since its IPO.
The good news is that management isn't slowing down (to be fair, this worries some investors due to the rising expenses from such rapid expansion). It plans to be in 140 to 145 markets by year-end, compared with the 100 markets during the first quarter.
Carvana's growth doesn't end there. It is ramping up its program to buy vehicles directly from consumers, which could prove more lucrative for the company, and expanding its financing and services business. For context, 2019 guidance calls for retail unit sales from 165,000 to 170,000, but management aims to grow its retail units up to 2 million.
Now, despite the company's impressive growth, there is a bear thesis to keep in mind: Its bottom line missed expectations during the first quarter and the company announced a fresh debt and equity offering to help fund its ambitions. Management needs to grow its presence, but it also needs to improve its scale and inch closer to profitability over time. For now, Carvana remains a high-growth stock with plenty of potential, and is worth your attention if you can handle the risk.
One stock to benefit from e-commerce and cashless payments
Chris Neiger (PayPal): PayPal has built itself into a household name by being one of the safest and simplest ways to pay for things online. And if it's been awhile since you've considered adding PayPal to your investment portfolio, it's time to give this high-flying stock another look.
Its share price has skyrocketed 215% over the past three years (compared with the S&P 500's 40% gain) as the company has benefited from the growth of e-commerce sales. And there's no sign that this trend will slow down. Just 11% of all U.S. retail sales will occur online this year, which means that PayPal still has lots of potential to tap into the e-commerce market as it grows from $2.8 trillion in 2018 to a projected $4.9 trillion by 2021.
But it's not just e-commerce that will fuel PayPal's growth over the next few years. The person-to-person (P2P) payment market will also contribute. P2P payments include everything from using smartphones to pay the rent to splitting the check at a restaurant, and it's estimated to reach $244 billion by 2021. To tap into this market, PayPal snatched up Venmo, a payment app company, a few years ago. Venmo now has 40 million active accounts that completed $21 billion in total payment volume in the most recent quarter.
Whether it's through the growth of online shopping or P2P payments, PayPal continues to make big bets on digital payments, and investors should take notice. The company is already a leader in this space, and as cashless payments for everything from online sales to point-of-sale terminals continue to grow, PayPal will be right there growing along with them.
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Chris Neiger has no position in any of the stocks mentioned. Daniel Miller has no position in any of the stocks mentioned. Nicholas Rossolillo has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends PayPal Holdings. The Motley Fool recommends Momo. The Motley Fool has a disclosure policy.