Investing in growth companies remains the best bet as we head into 2021. High-growth stocks have the potential to increase your investments multi-fold allowing you to benefit from compounded returns over the long-term.
For example, a $1,000 investment in Canada’s e-commerce giant Shopify (SHOP), soon after its IPO, would have returned a staggering $33,000 today. Growth companies increase their sales and earnings at a far higher pace compared to peers which mean their stock price also rises at an exponential rate.
While these companies trade at a premium or at an expensive valuation, long-term shareholders are rewarded with handsome returns over time. Here we look at three such growth stocks that are ideal for the growth investor.
A digital-payments company
The first stock on the list is Square Inc. (SQ), a digital payments company that is eyeing rapid expansion. Companies in the fintech space have been immune to the impact of the COVID-19 pandemic. Instead, the dreaded virus has acted as a tailwind for Square and accelerated the digital payments trend in the last six months.
Square is part of a swiftly expanding market which is forecast to grow from $910 billion in 2020 to $1.5 trillion in 2024. Comparatively, Square continues to expand at a faster rate than the overall market and is forecast to increase sales by a robust 230% year-over-year in 2020 to $7.5 billion.
In the June quarter, Square’s total sales rose 64% to $1.9 billion while the gross payment volume on its platform was up 50% year-over-year. One of the key revenue drivers for the company in the upcoming quarters will be its Cash App where monthly active users have now touched 30 million at the end of Q2 and sales growth stood at 140%.
Roku stock is up 51% year-to-date
Roku (ROKU) is one of the leading streaming companies in the world. The developed world has seen a massive shift in the way content has been consumed in the last few years. This phenomenon, also known as cord-cutting, has meant millennials are increasingly streaming content rather than watching it on satellite or cable TV.
Netflix is now a household name all over the world and the streaming industry has attracted giants including Apple, Disney, and Amazon as well. However, Roku might just be the biggest beneficiary of this change in consumer behavior.
While Roku initially relied on its set-top boxes and dongles to generate revenue, in the last two years, its Platform business accounts for the majority of sales. For example, in Q2, the platform business accounted for 65% of total sales and grew by a stellar 79% year-over-year.
This indicates Roku has successfully monetized its user base of 29 million active accounts. Content publishers allow their ad-supported portfolio on Roku’s platform and the latter takes a cut of up to 30% from ad sales. Alternatively, the company also gets a portion of the pie when users subscribe to a streaming service.
Over 85% of families in the U.S. now subscribe to a streaming service and there is tremendous scope for expansion in international markets as well.
A programmatic ad player
The final stock on this list is The Trade Desk (TTD), a cloud-based technology platform that allows enterprises to optimize their digital ad spending. TTD stock has already doubled in 2020 and is well poised to repeat its performance in 2021.
Just as people are switching to online streaming, companies are also spending heavily on digital platforms and TTD should take advantage of this trend due to its leadership in the buy-side programmatic ad vertical.
The COVID-19 pandemic will lower enterprise marketing spending in 2020. However, this is likely to be a temporary headwind for TTD. Analysts tracking the stock forecast sales to grow by just 11% this year. However, the company is expected to accelerate sales growth by 36% in 2021.
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SQ shares were trading at $168.87 per share on Wednesday morning, up $10.66 (+6.74%). Year-to-date, SQ has gained 169.93%, versus a 9.01% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditya Raghunath
Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist. More...
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