The five stocks in this video surged an average of 2,000% in the five years to last year’s peak, more than 20-times your money in just five years. Here, I’ll also show you the one growth stock you should be buying right now.
And while each of these growth stocks have come down hard in the crash, all five are still growth companies, changing the world in which we live and with the potential to see those stock prices touch the highs once again!
In this video, I’ll share the five growth stocks to watch and the one every investor should be buying. It’s the sixth in our Just One Stock series, if you could only invest in one stock in different themes, which should it be! Going to cover all the strategies here from value to growth, tech stocks and by the end of the series, you’ll have a portfolio of the very BEST stocks to buy! So join the community and watch each week for a new episode!
I showed you last week how it would have taken 51 years investing in stable dividend stocks like Coca-Cola to put that Lamborghini in the driveway. That’s a respectable 11.6% annual return but how the tech stocks in the Nasdaq have blown that away with a 16% annual return over the last 20 years.
Well growth stocks are like the supercharged part of the Nasdaq! Stocks with the potential to beat even that 16% annual return.
In fact, the five growth stocks I’ll highlight can produce 20% annual returns to fair value and right now is the perfect time to be watching these stocks. All are down double-digits from their peak but still the same growth companies that pushed prices up ten- and 20-times over the past five years.
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Let’s start with a few growth stocks I’m watching, fast-growing companies that just nearly made the top pick, then I’ll show you what I’m looking for in these and reveal that #1 best growth stock to buy right now!
5 Growth Stocks Every Investor Should Be Buying
First on our growth stock list, Digital Turbine, ticker APPS, which was up more than 60-fold from the 2017 IPO to last year.
And for all these stocks, I’m not suggesting they get back to their all-time-highs anytime soon but what we’ll see is the growth factors that took them there, that really got investors looking at the stocks, are still very much there. These companies are dominating in growing industries and will turn that growth into profits in the future.
The company is kind of a behind-the-scenes picks and shovels play on the influencer era, providing media and mobile applications for content and advertising. Maybe I’m biased, working in the industry but Digital Turbine has some great fundamentals here.
The big news recently was a strategic partnership with Google to build for Android devices and expand into mobile, connected devices and TV in the Android ecosystem. The company is also focusing on its global expansion through a partnership with Telefonica, one of the largest telecom providers in Latin America.
And we see that explosive growth here, sales up 125% in the last year and up at an 88% pace in the last three. At the same time, the company’s been able to significantly improve profitability over the years.
Sales are expected to continue higher at a 33% pace in the next three years and to continue from there. Even if growth moderates to 25% over the next five years, that takes revenue to $2.3 billion by the company’s fiscal 2028. Shares trade for just 3.3-times on a price to sales basis which is incredibly cheap for a growth stock, in fact, the stock traded as high as 13-times price-to-sales last year, but even if the valuation goes to just 4-times sales in the next bull market, this stock could hit $93 a share for a 287% return over those five years.
We’re just getting started but we need to talk about the elephant in the room before it stampedes the comments section, before I get a hundred comments about how these stocks suck because the price is down…well no shit. The entire market is down, especially growth stocks but you don’t analyze a stock based on it’s price chart. A stock’s value is based on the company’s FUTURE earnings.
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For example, if your sole criteria for a good stock is if the price has gone up…would this be a good investment? Hell no! Even though shares bounced off the bottom, Intel had lost its competitive growth by 2002 and has done nothing for almost 20 years. Here it is underperforming the Nasdaq by more than 460% since.
Or what about this stock? It crashed in the 2008 bubble along with the rest of the market but then shot higher on the rebound, was that a good stock because the price was going up again?
Again, NO. That’s shares of Blackberry Limited, another company that lost its innovative advantage and the stock lost 93% over the last decade.
My point is folks, you CANNOT just look at a stock’s price chart and let that do your investing. I’m going to show you exactly what to look for in these growth stocks later in the video but please, please do not fall for the bullshit you hear on some other YouTube channels just pushing you into crap stocks that happen to be going up at one point.
I do want to get your input on this though. What do you look for in a growth stock and do you think any of the runner-up stocks here should have been the top pick. So watch through then scroll down and let me know in the comments.
Our next growth stock, Invitae Coropration, ticker NVTA, recently reported earnings that sent the stock up 286% in a single day and while it’s give back some of those gains…the future is proven for this company.
Invitae is leading in that genetic testing and screening area of the market, focusing initially in the oncology segment but really expanding it throughout genetic information testing to answer questions about health in all age groups from pediatrics to fertility and diagnostics.
Innovation has pushed the cost of multi-cancer and other gene screening down 95% from 2015 to just $1,500 today and it’s expected to fall another 80% to just $250 by 2025. That current $1,500 screening cost though, the purple line here, is still only reimbursable for those 60 and older. As the cost lowers though, you get the test down to where people much younger are being reimbursed and they’re willing to pay. At a $1,000 test, we could open multi-screening cancer to those as young as 40 years old.
Being able to test people at a younger age could potentially save more than 60,000 people a year in the U.S. alone and means a massive increase in the market for screening and testing stocks.
And it looks like that trend is starting to show through in Invitae results. The company blew past earnings expectations last quarter, not only growing revenue by nearly 18% but also improving profitability. During the quarter, the National Comprehensive Cancer Network updated its guidelines for colorectal cancer, removing some age group and cancer type restrictions that could open up that increase in testing.
The company is estimating a $154 billion market opportunity across four segments and is already one of the most advanced in genomics stocks for revenue.
Revenue is expected to double over the next three years to $1 billion annually and this is as the company improves profitability as well and converts more of that to earnings. This is another one that has seen the valuation just destroyed over the last year. Shares trade for a price of just two-times sales against last year’s valuation of 25-times on a price to sales basis. Now obviously that 25-times multiple was ridiculous but even if we get back to a 3-times multiple, closer to the average for diagnostics companies, and on that $1 billion sales target, we get a price target of at least $13.15 per share or a 200% return in just three years.
I’ll reveal those next three growth stocks to watch as well as what I’m looking for in fast-growing companies but keeping ahead of these means keeping ahead of the news. For that, I want to personally invite you to get the Weekly Bow Tie, our free weekly newsletter with all the stock market news and trends you need to know. Each week, before the market opens, I’ll show you what I’m watching and the stocks that could highlight the week. It’s all totally free, just something I like to do for you out there in the community.
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Next is one of the largest stock positions in my own portfolio with 1300 shares or about $48,000 in Teledoc Health, ticker TDOC.
Teladoc is the global leader in virtual healthcare with a provider network that covers 76 million U.S. patients and a billion member data points from traditional telehealth to remote monitoring and next generation primary care.
Obviously the last two years were huge here, like five years of growth, but the company was already growing at a solid rate. Membership growth has grown 33% annually since 2018 and the company booked nearly 15 million patient visits last year.
Revenue doubled last year and 80% of that is from recurring services so I like it for the stability even if growth for telehealth slows from last year’s faster pace. Longer-term, telehealth and virtual care is the future but I think the data is really the undiscovered value here, processing all that patient data for analysis and research.
Now the news lately has been about Amazon’s $3.5 billion acquisition of One Medical, expanding its own health services reach and worrying investors about competition for Teladoc so I wanted to address that.
First, Amazon has been building out its healthcare division since buying online pharmacy PillPack in 2018 and testing services for its own staff since 2019. It already failed at a joint healthcare company with Berkshire Hathaway and JP Morgan and it obviously hasn’t changed the game for providers.
With One Medical, it’s getting a small unprofitable company with just 767,000 customers versus Teladoc’s 76 million…so Teladoc is 100-times larger and still dominates the industry!…and this is all if the deal gets regulatory approval because we know Congress is all over Amazon for its monopoly in ecommerce and digital ads already.
And where just last year shares of Teledoc were the posterchild for those expensive growth stocks last year, the selloff has taken this one into really attractive territory. Through increased monetization and modest member growth each year, management has a three-year target for 25- to 30% annual revenue growth. That takes it to just over $4 billion in revenue by 2024 on estimates for $2.6 billion this year.
Shares now trade for 2.8-times on a price-to-sales basis, down from 17-times last year, on a stock still growing by strong double-digits. Even on a very conservative price multiple of five-times its 2024 sales target of $4 billion, that’s a $20 billion company for a 238% return to $122 per share.
PayPal Holdings, ticker PYPL, is another of the largest holdings in my portfolio with 500 shares though a little slower growth than the others on the list.
I’m fine with that because the company is still growing active users at a 20%-plus rate and on revenue over $25 billion already, that’s not an easy task. Whereas most of these growth stocks are smaller, start-up type investments, PayPal dominates the more mature digital payments market and is leading in digital wallets.
Now a digital wallet is really just another way of saying a totally online bank account and the growth here could surprise everyone! It took Square and PayPal just seven and ten years to reach 60 million users, that’s less than a third the time it took JP Morgan when it started in the 90s.
Digital wallet users could more than double in the next few years, reaching 230 million by 2025 just in the United States. More than just that growth for fintech stocks though is the potential change in valuation.
On a per user basis, the Venmo and Cash App are valued at between $250 and $700 for owners Square and PayPal. But that’s just a fraction of the nearly $20,000 each customer could be worth…in fact, right now PayPal’s Venmo unit is worth about $10 billion…just a fraction of the $115 billion market cap for the company BUT if the company were able to optimize those users to that full $20,000 potential…Venmo alone could be worth more than a trillion dollars! That’s ten-times the stock value for all of PayPal and it could all happen in the next five years.
That $20,000 estimate comes from the ability to cross-sell users into everything financial, for these fintech companies to become a one-stop for banking, investing, lending and credit. And you see in the chart, the finance side of the business would be worth over ten grand a customer but that next level of expanding into ecommerce doubles the valuation.
Obviously the market isn’t yet giving it credit for the potential in digital wallets at a price-to-sales valuation of 4.5-times revenue. Sales are expected to grow at a relatively slow 13% pace but I think that underestimates the potential when PayPal starts monetizing its user base. I have a $175 price target on the shares if nothing changes, if it just keeps growing at that rate, but when it does unlock that digital wallet valuation, PayPal could go much higher.
What to Look for in These Growth Stocks
I’ll reveal that best growth stock to buy next but you know I can’t just drop a list of stocks in your lap and say, go buy these! So I want to show you what I’m looking for in these growth stocks because it’s going to be different from what we want to see in other stocks like dividend payers or even tech stocks.
Most important here is to find that one metric in the stock’s industry that signals supernormal growth. For many of these it’s going to be subscriber growth, especially the new, innovative industries like virtual healthcare, streaming and financial technology. Investors want to see how fast a company can grab market share, bring in as many customers as possible, before the industry matures because at that point the market shares solidify and that growth turns to massive earnings on a dominant position.
For other industries, especially biotech and other tech stocks, it’s all about that innovative edge maintained through spending on research and development. This is something we talked about in our last video on tech stocks, how important it is that a company develops and keeps that innovation edge over its competitors through R&D spending.
This is how Intel died, by cutting back on the amount it spent each year to maintain that innovative advantage in its chip designs. And it’s easy enough to find by looking at a company’s income statement on Yahoo Finance, under the Financials tab. Here we see DataDog, ticker DDOG spent $491 million on research and development in the last 12 months, take that number divided by total revenue and it’s spending more than 41% of its revenue to maintain that competitive advantage and growth.
Of course, I’m also looking for revenue growth and the operating margin as indications of a deeper competitive advantage but we highlighted those in the last video as well so look for the link to the best tech stocks to buy in the video description.
And the best growth stock right now, one I started investing in just this year, SoFi Technologies, ticker SOFI.
SoFi started as an online student loan refinance platform but has evolved into a full service, fintech wallet and I believe is one of the best positioned for the future of digital banking. Where other fintech platforms like PayPal and Upstart are still trying to bring on products and services, SoFi already has a lead in everything finance from insurance to credit, investing and banking.
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A big part of this was the company’s approval for a banking charter through its acquisition of Golden Pacific Bancorp that closed last year. Because most other fintech companies don’t have a bank charter, they can’t offer services like checking or savings and don’t have access to low rates like a traditional bank. This really does put SoFi way ahead of the competition and the company is going to be leveraging that for growth!
We saw that strength in the company’s most recent quarter with revenue up 57% from last year to $362 million and net interest income up 101% as SoFi really flexes its banking muscles. And remember, that growth is even as the extended forbearance on student loan payments created a drag, so once that’s lifted, we could see even faster growth.
The company reported 87% growth in new members last quarter to almost 3.5 million and while the percentage increase is slowing, that is amazing growth at that scale. To put that into perspective, the company’s closest competitor Ally Financial grew its customer base by just 11.7% last year.
And besides the price-to-sales valuation we’ll look at next, I think the market value to client accounts valuation is even more interesting. SoFi’s market cap, the total value of all shares, of $5.5 billion is about $1,500 per customer account. But if we look at traditional banks, growing far less quickly, like Bank of America and Wells Fargo, we see an average of $2,500 per customer account for the stock valuation. That would mean SoFi is trading at a 40% discount to these other bank stocks.
Expectations are for 35% growth to $3.7 billion over the next three years and all this is happening as management expects to improve profitability from a 3% EBITDA margin to 11% this year. Shares are priced right now at 5.6-times revenue with sales and we’ll stick with a 5.5-times multiple but on expected sales it could be a $20.3 billion company in just three years for a 269% return to $25 per share.
But that growth won’t stop there and it’s why I’m calling SoFi the best growth stock to buy right now!
Check Out the Entire Growth Stocks Series