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3 Stocks That Have Doubled and Still Have Room to Grow

Matthew DiLallo, Rich Smith, and Brian Feroldi, The Motley Fool

All too often, investors feel as if they've totally missed out on a stock after a big run-up. However, this mentality of looking in the past can cause them to miss out on the upside that's still ahead. That's why investors shouldn't concentrate on what they've already missed when looking at a stock, but instead focus on what's yet to come. 

Three stocks that have already enjoyed epic runs are LGI Homes (NASDAQ: LGIH)Denbury Resources (NYSE: DNR), and Paylocity (NASDAQ: PCTY). While each one has doubled in the recent past, we still think they have plenty more upside ahead. 

A man making an upward line with his finger.

Image source: Getty Images.

Growing demand for homes will help this homebuilder grow

Rich Smith (LGI Homes): Two months ago, I suggested that a limited supply of homes for sale, combined with rising prices for homes being built and sold, made dividend-paying homebuilder M.D.C. Holdings (NYSE: MDC) a good pick for investors seeking dividend income. Today, these same factors have me thinking that M.D.C. rival LGI Homes might be just as good a pick for investors who don't care so much about dividends.

LGI has been a rewarding investment so far. Since I first highlighted LGI as a stock "due for a bounce" one year ago, it has done that in spades, literally doubling in value in the space of a year. The same factors that I saw benefiting M.D.C. in January could continue driving LGI's performance in March and beyond.

Nearly a decade after the housing market imploded, there once again is a deficit of houses on the market. Realtors still think housing prices are going up in 2018, which should translate directly into profit on homebuilders' bottom lines.

In LGI's case, Wall Street analysts are projecting 20% annualized earnings growth five years into the future -- even faster growth than they see in store for M.D.C. Despite this, LGI Homes sells for a lowly 13.5 times earnings, giving the stock a PEG ratio of just 0.7 -- 30% below the ratio that value investors ordinarily say is a "good price" for stocks.

At prices this low and with growth prospects this big, who even needs dividends?

Still a long way to go

Matt DiLallo (Denbury Resources): Oil producer Denbury Resources has been scorching hot lately, skyrocketing 130% in the last six months. Several factors have fueled this rapid rise, though the primary one is that oil has rebounded from a bottom in the low $40s last summer to more than $60 a barrel in recent weeks. That enabled the company to make more money than expected last quarter and sets it up for even more profits this year.

In addition to that, Denbury Resources reported strong production results from a newly tested formation in the Rockies. Because of that, the company plans to drill several more of these high-value wells this year, which positions it to continue increasing production and cash flow.

Meanwhile, the company is working on several initiatives to unlock the full value of its asset base, which it believes the market still undervalues due to its weaker financial position. As the company makes progress on these aims, it could lift more of the weight that still has the stock down by two-thirds in the past three years, even after its recent run-up. The company still is early in its recovery, and it looks as if there's plenty of fuel left in the tank.

A hand drawing three lines, with one rising above the others.

Image source: Getty Images.

A mobile-first approach to payroll

Brian Feroldi (Paylocity): I love investing in companies that help other businesses simplify their back-office functions. My reasoning is that changing a vendor can be an arduous process, so once a company finds a solution that meets its needs, it tends to stay loyal. 

One business-services company that I've become quite fond of is Paylocity, which offers cloud-based human resources services and can help its clients with tasks like payroll, benefits management, scheduling, hiring, firing, and more. What makes Paylocity stand apart from incumbent payroll providers is that it takes a mobile-first approach. The company's products work seamlessly on computers, tablets, and phones. This allows HR teams and employees alike to run reports and make changes when necessary. The company also prides itself on providing its customers with exceptional service so they can make the most out of their investments.

These benefits might sound small but they haven't gone unnoticed in the marketplace. Paylocity has been peeling away market share from the big boys for years. Last quarter, the company's top line grew by 25%, and management expects its high growth rate to continue for the foreseeable future.

The investor in me loves that 97% of Paylocity's revenue is recurring and that the company has grown big enough to start posting GAAP profits. What's more, the company's profits should grow even faster than revenue over the next few years as operating leverage starts to kick in.

Paylocity's stock has already more than doubled since its IPO in 2014, but I think that this company's growth story is just getting started. While the share price is certainly pricing in a lot of prosperity -- the stock trades for nine times sales and 49 times forward earnings -- I think this business is so high quality that the premium is justified.

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Brian Feroldi owns shares of Paylocity Holding. Matthew DiLallo owns shares of Denbury Resources. Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of LGI Homes. The Motley Fool has a disclosure policy.