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3 High-Growth Stocks That Are Just Getting Started

Chuck Saletta, Rich Smith, and Keith Noonan, The Motley Fool

Some of the best returns happen when investors buy into companies that are just getting started on their growth trajectories and then hold on while that growth is realized. For those investors to receive those stupendous returns, however, the companies involved have to actually deliver on the growth, and the market itself needs to price those shares at a low enough level that it can be surprised on the upside.

We asked three Motley Fool contributors to name high-growth stocks that are just getting started. They came up with Guardant Health (NASDAQ: GH), Huya (NYSE: HUYA), and Beyond Meat (NASDAQ: BYND). Read on to find out where these companies are on their growth journeys -- and whether they look like they could provide the kind of outsized returns only possible when you invest before a company's tremendous growth is realized.

Building Blocks showing growth and upward pointing arrows.

Image source: Getty Images.

You can buy this med-tech stock before even the doctors have heard about it

Rich Smith (Guardant Health): My recommendation today involves two anecdotes: First, when seeking a new primary care doctor, I followed my mom's advice (she was a medical librarian at Johns Hopkins, after all, so she should know). "Find a doctor affiliated with a large research university," she said. They're more likely to hear first about recent advances in treatment.

And second, having found such a doctor within Indiana University's healthcare system, I began to quiz him: "You're saying that now that I'm approaching 50, it's time to start thinking about cancer detection, so ... what do you know about the liquid biopsies being pioneered by Guardant Health?"

Answer: He had never heard of them.

But that's not too surprising. With just $91 million in revenue last year, Guardant Health is really just getting started in its quest to use blood samples to identify the genetic makeup of cancer cells in patients -- and eventually, to screen patients for early signs of cancer. And yet, its tech is proving so popular that this year, sales could surge more than 60% to $150 million. And over the next four years, that number could quadruple -- to $603 million -- according to analyst estimates.

If the analysts are right, this could be a high-growth stock to beat all high-growth stocks. And if not many doctors have heard of it, it's run higher could just be getting started.

If you don't believe me, just ask your doctor.

This streaming company is posting explosive growth

Keith Noonan (Huya): To say that Chinese tech stocks aren't a popular play at the moment would be an understatement. After comments from President Trump in April suggesting that significant progress had been made on a trade agreement with China, the outlook for a deal has since taken a significant turn for the worse and raised concerns that growth for the world's second-largest economy will continue to slow.

What's more, the overall digital advertising industry appears to be going through a bit of a shake-up, and this has had a significant impact on many of China's internet stocks. So there's no shortage of potential complicating factors for investors to weigh at the moment, but there are still Chinese tech companies that are expanding at a rapid clip and have a long runway for growth. Huya looks to be one of them. 

Huya's business revolves around allowing users to broadcast themselves playing video games or watch broadcasts from other users. The company primarily generates revenue by taking a cut of donations that viewers make to the streamers, a model that's similar to that of Amazon.com's Twitch service. The viewer-donation-based business accounts for more than 90% of Huya's sales, is growing at a rapid clip, and means that the company is pretty insulated from shifts in the digital advertising market. What's more, while other streaming video companies are spending big to create original content and license movies and television shows from other creators, Huya has very little in the way of up-front content costs.

The company is seeing strong momentum across its core engagement metrics, with daily average users climbing 33% year over year last quarter and total paying users climbing 57%.The earnings report delivered 93% year-over-year sales growth, marking its fifth consecutive quarter in which revenue roughly doubled versus the prior-year period, and adjusted net income for the quarter climbed roughly 94%.

Gaming-video content has exploded in popularity over the last decade, the audience for video game live-streams continues to get bigger each day, and Huya is in good position to capitalize on favorable industry trends even as trade tumult is casting uncertainty over the broader Chinese tech space. 

The market is expecting tremendous growth from this newly public company

Chuck Saletta (Beyond Meat): Modern meat substitutes are a lot tastier than previous generations, which gives rise to hope that they may actually make progress as replacements for animal proteins. On that front, Beyond Meat's shares have exploded since its recent IPO, as its first earnings report as a public company showcased some spectacular triple-digit revenue growth.

Of course, that tremendous revenue growth is only possible because Beyond Meat is a pretty new company just getting started on its quest to provide tasty substitutes for meat. The downside from an investor's perspective is that the market already reflects that tremendous growth. Indeed, Credit Suisse's recent upgrade for Beyond Meat's stock price target is based at least in part on a revenue projection that goes out to 2030.

A forward price-to-earnings or price-to-revenue projection is a fairly standard part of stock analysis. Typically, though, those projections are for the next 12 months -- or perhaps as far out as the next fiscal year or calendar year that hasn't yet started. To take a revenue projection out more than a decade -- without discounting it -- to justify a company's current market price is a clear indication of shares that are priced for perfection.

As a result, while Beyond Meat is just getting started in its journey, its shares already reflect the success it hopes to achieve many years in the future. If that success doesn't come, or if it comes later than expected, or if the market just loses patience along the way, shareholders buying in at this valuation may very well see substantial pain instead of rewards.

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Chuck Saletta has no position in any of the stocks mentioned. Keith Noonan has no position in any of the stocks mentioned. Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Guardant Health. The Motley Fool recommends HUYA Inc. The Motley Fool has a disclosure policy.