3 growth stocks that plan to increase sales by at least 180% over the next 5 years
The US stock market entered a turbulent zone in September, with volatility driven by concerns about inflation and the impact that the sharp rise in COVID-19 cases could have on the economy. Investors are also worried that the Federal Reserve will cut back on its monetary stimulus activity in the coming months, which could have a negative impact on growth stocks. And more recently, the market has also been rocked by the possibility of a massive default from China’s second-largest real estate developer, Evergrande Group in China (OTC: EGRN.F), which could have a huge impact on the country’s economy.
In the midst of all this chaos, lies the opportunity. The stock prices of many high growth companies have fundamentally fallen recently due to the market turmoil, among which were Shopify (NYSE: SHOP), Nvidia (NASDAQ: NVDA), and Square (NYSE: SQ). Investors could position themselves for good returns by buying these stocks at a discount now.
1. Shopify predicts 395% sales growth by 2025
Shopify provides digital infrastructure and software tools that businesses of all sizes can use to establish an ecommerce presence and manage online and physical store operations. In 2020, 8.6% of retail e-commerce sales in the United States took place on its platform, giving it the second largest share of the e-commerce market after Amazon.
The company serves a large customer base of over 1.7 million businesses around the world. It has also built a community of 46,400 partners and an ecosystem of 7,000 applications that extend its core capabilities. With the ability of the Shopify ecosystem to handle a range of use cases across industries, more and more merchants are choosing to sign up for its services. This growing customer base makes it even more attractive to partners and application developers. Network effects have resulted in a loyal customer base as competitors have to offer a lot more services to lure Shopify customers away from its platform.
By the end of the second quarter, 63% of physical Shopify customers in English-speaking regions had switched to omnichannel features, a significant jump from around 2% at the end of February 2020. The rise of omnichannel retail is a driver major growth for Shopify. It also leverages its partnerships with social media platforms such as TikTok and Facebook to attract more traders and entrepreneurs.
Shopify’s revenue climbed 86% to $ 2.9 billion in 2020 and grew 57% year-on-year to $ 1 billion in the second quarter of 2021. The company is also experiencing rapid expansion in recurring revenue, which improves the visibility of its income. Increased operating leverage, lower general operating expenses, also translates into higher profits.
Shopify is currently trading at 47 times 12-month rolling sales (TTM), well above the software industry’s median selling price (P / S) multiple of 3.84. However, against the backdrop of a strong customer base and rapidly improving financial situation, the stock can be an attractive buy even at these high levels.
2. Nvidia predicts 182% sales growth by fiscal 2026 (ends January 31, 2026)
Once a small graphics chip specialist focused on the PC gaming market, Nvidia now has an 83% share of the global discrete graphics processing unit (GPU) for PC market. While its GPUs are still highly sought after by gamers, Nvidia products are now widely used in data centers, artificial intelligence systems, cloud computing, autonomous driving systems, 5G networks, professional visualization and cryptocurrency mining. For example, its GPUs provide vital computing power to cloud computing players such as that of Microsoft Azure, the alphabet Google Cloud and Amazonis AWS.
The launch of Nvidia’s GeForce RTX 30 Series cards, based on its new GPU Ampere microarchitecture, has sparked a massive upgrade cycle in the PC gaming world. Although these cards hit the market in September 2020, only 20% of the company’s installed gaming base had upgraded them as of August 1, 2021, at the end of its fiscal second quarter 2022. Since the share The lion of its old gaming customers has yet to be upgraded, Nvidia still has a large market to tap for additional sales.
Additionally, the launch of the GeForce NOW subscription cloud gaming service in February 2020 opened up more revenue opportunities for Nvidia. Newzoo estimates that the global cloud gaming market will be worth $ 6.5 billion by 2024.
Nvidia’s dominance in the burgeoning GPU market is reflected in its finances. Since 2017, revenue has grown 256.7%, while net income has jumped 480.7%. In the second quarter of fiscal 2022, gaming revenue grew 85% year-over-year to $ 3 billion, while data center revenue grew 35% to $ 2.4 billion. At present, there is regulatory uncertainty as to the fate of the company’s proposed $ 40 billion acquisition of Arm Holdings from Softbank Group (OTC: SFTB.Y). But if the deal goes through, it will mean major progress for Nvidia not just in the smartphone business, but in several other cutting-edge smart apps.
Even without Arm, Nvidia’s strong GPU business is fueled by the rapidly evolving digital economy. Therefore, although the company is currently trading at a rich valuation of 25 times TTM sales, which is much higher than the semiconductor industry median P / S multiple of 3.98, it could still prove to be a winning choice for retail investors.
3. Square expects sales growth of 273% by 2025
The Fintech Square actor has come a long way in the past decade. From its origin as a manufacturer of point-of-sale devices for small businesses, it has grown into a full-fledged financial platform for merchants and consumers.
Square’s seller ecosystem provides point-of-sale devices, access to capital and analytics, and other solutions to merchants. Its peer-to-peer Cash App platform, although it is now a much smaller part of the business, is growing faster. In the second quarter, the Seller Ecosystem and Cash App processed gross payment volumes (GPVs) of $ 38.5 billion and $ 4.3 billion, respectively. The seller ecosystem gross margin increased 85% year-on-year to $ 585 million, while Cash App’s gross margin increased 94% to $ 546 million.
Square’s large customer base, which includes millions of sellers and 70 million annual active Cash App customers, has created a strong network effect. The company’s seller ecosystem is increasingly focused on larger companies (with an annualized GPV of over $ 125,000), a cohort of customers generally more resilient in the face of macroeconomic uncertainties. In the second quarter, 65% of the total revenue of its seller ecosystem came from these large companies. The company’s potential acquisition of the leading Australian player to buy now and later pay Afterpay in a $ 29 billion deal could also prove to be a solid move. If successful, the Afterpay deal will expand Cash App’s payment options and add 16 million active customers. Square also expects the integration of Afterpay into its seller ecosystem to help it attract more business customers and expand into new geographies.
Square is currently trading at a TTM P / S multiple of 8.43, significantly higher than the software industry’s median multiple of 3.84. Despite this premium valuation, the company’s strong value proposition makes it a must-have choice for retail investors.
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