Investing in the right growth stocks can help you accelerate your wealth building and bring you many steps closer to your dream retirement. As businesses grow their profits and cash flows, their share prices should rise in tandem, netting you valuable capital gains and lifting the value of your investment portfolio. The key is to be patient and have a long-term view so that your stocks can reach their full potential.
The best types of growth stocks are those with a dominant business model and a track record of growth over the years. These businesses have the potential to become multibaggers, defined as stocks that multiply in value many times over. Other key characteristics include a strong management team, having the knack to evolve its business to keep up with the latest trends, and the ability to ride on long-term tailwinds.
Here are three stocks that have the potential to grow $1,000 by fivefold or more in six years.
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1. Shopify
Shopify(NYSE: SHOP) operates a platform that equips entrepreneurs and small business owners with the tools and knowledge to sell their products and services. The business has done well to increase its revenue and free cash flow over time.
Revenue started at $4.6 billion in 2021 and increased to S$7.1 billion by 2023. Shopify's free cash flow surged by almost 87%, going from $485 million to $905 million over the same period. The better result was driven by more people wanting to start home businesses because of the pandemic.
Judging by Shopify's latest set of earnings for the third quarter of 2024, the e-commerce company is going from strength to strength. The gross merchandise value flowing through its platform increased by 24% year over year to $69.7 billion while gross payments value jumped 31% year over year to $43 billion. Monthly recurring revenue for the quarter increased from $137 million to $175 million.
These strong operating statistics also showed up in the company's financials, with revenue for the quarter rising 26% year over year to $2.2 billion and free cash flow surging by almost 53% to $421 million.
Shopify looks on track to continue doing well. The company became Roblox's very first commerce integration partner and expanded its partnership with PayPal. Its international expansion is also gaining momentum with a 36% year-over-year increase in international merchants such as The Body Shop and Watches of Switzerland. During last year's Investor Day, Shopify announced that it occupied just a 1% market share out of a global-revenue total addressable market of $849 billion. These business initiatives, along with the massive addressable market, point to a bright future for the company.
2. Uber
Uber Technologies(NYSE: UBER) operates an app that provides a platform for users to hail rides and order food delivery. The company also provides courier and freight services. The pandemic and subsequent digitalization push have led to a surge in demand for Uber's services as more people go online to use its services.
This boom has helped the business to more than double its revenue from $17.5 billion in 2021 to $37.3 billion in 2023. The company went from an adjusted net loss of $3.3 billion in 2021 to an adjusted net profit of $73 million in 2023, demonstrating the strong operating leverage it enjoys in tandem with increased scale. Cash flow also improved tremendously over this period, going from a free cash outflow of $743 million in 2021 to an inflow of $3.4 billion by 2023.
Uber's recent 2024 third-quarter results demonstrated promising operational highlights. Monthly active platform users rose 13% year over year to 161 million. The number of ride-hailing trips increased by 17% to 2.9 billion, bringing in gross bookings of $41 billion, up 16%.
Financial results for the first nine months of 2024 showed continued improvement in profitability and free cash flow. Revenue rose 17% year over year to $32 billion with an adjusted net income of $1.7 billion. Free cash flow doubled from $2.6 billion to $5.2 billion.
It's still early days for the platform as management believes there is still room for significant growth. Higher penetration rates should help to increase gross bookings in countries such as India and the U.K. for its Mobility segment. Specific segments such as airports show great potential, with Uber making up less than 10% of global airport trips in a $10 billion business.
The company also believes it can grow significantly in large countries such as Spain, Argentina, Japan, and Germany where its name is not yet synonymous with ride-hailing.
Its Delivery segment will use a membership program to drive engagement and increase delivery gross bookings. Uber is working on a grocery and retail product through its app that can help it expand its uses and categories to capture a wider breadth of consumers.
These initiatives can help to drive multi-year growth for the business, and investors can keep the faith that Uber can continue to improve its bottom line and cash flow.
3. Airbnb
Airbnb(NASDAQ: ABNB) operates a platform that helps to connect accommodation providers and renters who are booking short or long stays. The company has seen healthy growth over the years as more people use its platform to book holiday stays.
With more people using its platform, Airbnb also attracts more accommodation listings in a virtuous cycle, creating a network effect that makes its ecosystem more valuable. Revenue increased from $6 billion in 2021 to $9.9 billion in 2023 with the company going from a net loss of $352 million in 2021 to a net profit of $4.8 billion in 2023.
Airbnb has no major capital expenditures, so its free cash flow tracks its operating cash flow, which improved from $2.3 billion in 2021 to $3.9 billion in 2023.
The company followed up with a strong performance for the first nine months of 2024. Nights and experiences booked rose 8.9% year over year to 380.5 million while gross booking value increased by 11.1% to $64.2 billion.
Revenue rose in tandem with the higher level of transactions, increasing by 12% year over year to $8.6 billion. Operating income improved by 5.4% to $2.1 billion while profit before tax climbed 9% to $2.7 billion. Net profit for the period was distorted by a $2.7 billion tax credit recognized by the business in the previous corresponding period. Free cash flow continued to climb, going from $3.8 billion to $4.1 billion.
Airbnb has embarked on several initiatives to continue growing. With over 8 million listings on its platform, the company is focused on making hosting easier, to attract and retain new hosts.
Continuous improvements are also being introduced on its platform to make the app more personalized, and the winter 2024 release alone contained 50 such upgrades. Airbnb also plans to penetrate markets where it has little or no presence as part of its global expansion strategy.
The company's initial public offering prospectus listed an estimated total addressable market of $3.4 trillion using 2019's figures. That number should surely have grown further in the years after the pandemic, which translates to attractive growth opportunities for the company as it rides on the wave of travel and tourism around the world.
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*Stock Advisor returns as of November 18, 2024
Royston Yang has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Airbnb, PayPal, Roblox, Shopify, and Uber Technologies. The Motley Fool recommends the following options: long January 2027 $42.50 calls on PayPal and short December 2024 $70 calls on PayPal. The Motley Fool has a disclosure policy.
