Albert Einstein is widely credited for calling compound interest the most powerful force in the universe, and it’s easy to see why. A few big winners can supercharge your portfolio and set you on a path to financial independence. For instance, $100 invested in a stock that doubles becomes $200; but at that point, the stock price only needs to rise 50% to add another $100 to the total sum. In other words, the baseline changes as the stock price rises, meaning you start earning money on your earnings.
However, the magic of compounding doesn’t happen overnight. It requires patience and a long-term mindset. Building on that idea, we asked three Motley Fool contributors to pick tech stocks that could grow threefold over the next five years. Keep reading to see why CarParts.com (NASDAQ:PRTS), CrowdStrike Holdings (NASDAQ:CRWD), and Teladoc Health (NYSE:TDOC) made the list.
An underrated e-commerce play
Jeremy Bowman (CarParts.com): E-commerce has been the source of numerous monster stocks. Of the bunch, Amazon is the best known, but companies like MercadoLibre, Shopify, Etsy, and Wayfair have all made investors rich as online retail continues to grab share from tradition channels.
That’s one reason why investors should take a closer look at CarParts.com. If you’re looking for a stock that could triple in the next five years, the pure-play auto parts e-commerce stock could be it. CarParts.com has a market cap worth less than $1 billion currently, but is chasing an addressable market worth $500 billion. As the larger e-commerce companies did before it, CarParts.com is helping the auto parts market shift from brick-and-mortar sales to e-commerce.
The company is targeting long-term revenue growth of 20% to 25% and an adjusted earnings before interest, taxes, depreciation, and amortization, or EBITDA, margin of 8% to 10%. Recent growth has been strong but demand has outstripped supply. The company is remedying that by expanding a warehouse in Texas, opening one in Florida, and adding another in the Northeast next year. The company now has more than 1 million square feet of warehouse space and growing, and each new expansion helps shorten delivery times and improve inventory and selection, creating a virtuous cycle that brings more customers into its ecosystem.
While the direct tailwinds from the pandemic may be fading, the average age of a car on the road in the U.S. is now 12 years, meaning demand for replacement parts will be elevated for the foreseeable future. The company is also beta testing a mobile mechanic, sending someone to your house to install the parts you ordered from CarParts.com, another sign of its potential as a disruptor.
The stock also has the potential to be a three-bagger because it’s still affordable at a price-to-sales ratio of less than 1.5, giving it plenty of room for multiple expansion. If CarParts.com can deliver on its long-term guidance, its stock should be significantly higher in a few years.
Strike while the iron’s hot
Eric Volkman (CrowdStrike Holdings): CrowdStrike is hardly the cheapest stock, either on a raw share price level or by valuation. But it’s an effective and highly admired operator in a hot sector that will scorch for years to come. So I’m confident it can be a three-bagger no matter how high its current numbers go.
CrowdStrike is a cybersecurity company whose anchor product, the Falcon security platform, is a cloud-based solution. There are a host of advantages to this. An important one is that it makes for relatively quick and painless adoption by clients, who benefit from not having to install and run traditional on-site security solutions.
Another huge plus is that the Falcon platform is modular. This not only makes it easy for clients to add functionalities as their security needs expand, but also provides low-hanging fruit for the company to increase revenue from those additions.
CrowdStrike also relies on the subscription model. This is appealing for investors, as it provides the company with a steady revenue stream that’s also durable — after all…
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