3 High-Growth Stocks That Are Just Getting Started

Seeking out fast-growing companies while they are relatively small is one way to find tomorrow's winners before they turn into Wall Street darlings. The three stocks we'll review below are tapping into major secular trends, but these companies are still growing fast and have a long way to go to reach their full potential.

Here's why Slack Technologies (NYSE: WORK), JD.com (NASDAQ: JD), and Farfetch (NYSE: FTCH) could be future multibaggers.

A collage of stock charts.

Image source: Getty Images.

Slack: The email replacement for employees

Slack has experienced rapid growth helping employees communicate more efficiently. It's basically replacing email at the workplace, and with more people working from home during the pandemic, Slack has really come into its own this year.

It ended 2019 with more than 660,000 organizations using its platform and 110,000 of those on a paid subscription plan. But through the first half of the year, its customer base has already spiked to over 750,000 organizations. 

Revenue has grown exponentially over the last few years, but Slack is still a relatively small company with a lot of potential to gain the business of more customers across different industries. There is also an opportunity to sell additional services to existing users, as noted by its consistently high net dollar retention rate of over 130%. 

WORK Revenue (Annual) Chart

The share price has been underwater since the company went public by way of a direct listing in June 2019, but investors are slowly coming around. The stock is up 37% year to date. Slack could face stiff competition from larger tech rivals, but the platform is already forming relationships with some of the top corporations in the world, including Amazon. If it can maintain this pace of growth on the top line, the stock could take off in the next few years.

JD.com: A dominant online retailer in China

Investing in leading e-commerce stocks has been a good place to park some money in recent years. The megatrend of consumers shifting to online shopping has been enough of a tailwind for JD.com, but the pandemic has brought its advantages in fulfillment infrastructure into the spotlight. 

A combination of pent-up demand and what management calls "a structural shift of consumer purchasing behavior from offline to online" boosted JD's business significantly in the latest quarter. Revenue growth accelerated to 34% year over year, driven by strong sales in groceries and healthcare products. 

JD also saw more shoppers from lower-tier cities in China and a broadening of demand across categories such as electronics and home appliances.  

As JD continues to grow, it has an opportunity to capture more share of online spending in China, which is more fragmented than the U.S. market. JD offers its merchant partners valuable services such as logistics, marketing, and warehousing. The company is also building important advantages in these areas that will only get stronger as it increases its scale and plows more investment into artificial intelligence and big data.

Over the long term, management expects profits to grow faster than revenue as margins improve from its increasing scale. Also, look for management's other strategic investments in digital platforms and services that could offer more opportunities for growth over time. JD has already formed partnerships with Tencent and Walmart as these companies collaborate to improve the e-commerce experience for customers. JD also happens to be one of the largest shareholders of Farfetch. 

All of these initiatives are a testament to JD.com's clout in the retail landscape. The stock has more than doubled year to date, but a forward price-to-earnings valuation of 44 is not too high for a business riding the global tidal wave of e-commerce demand.

Farfetch: Transforming luxury shopping

Farfetch is the leading digital sales platform for the fashion industry. It's a valuable partner for department stores and luxury boutiques that may not have the means to set up a direct-to-consumer fulfillment operation. Farfetch believes that its relationships with luxury merchants cannot be easily duplicated and represent a key competitive advantage. 

The company delivered a record second quarter with digital platform gross merchandise value reaching an all-time high of $651 million, up 34% year over year. Revenue surged 74%, and its top 20 brands that sell direct to consumers over Farfetch's marketplace saw sales double year over year. 

In a press release, CEO and founder Jose Neves said, "I believe this ongoing acceleration behind our business results from a paradigm shift in luxury shopping, as the industry undergoes a major acceleration of the secular online adoption I envisioned in founding Farfetch." 

The acceleration it experienced during the rise of pandemic has continued into the third quarter. The demand surge puts Farfetch on pace to reach profitability based on an adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) basis by 2021.

The stock has soared 166% year to date as of this writing, but it has only just recovered to the highs it reached shortly after its IPO. Farfetch has a massive opportunity to grow in the $100 billion online luxury market. Continued outperformance like what investors saw in the recent quarter should send shares even higher. 

The value of compound returns

Finding the right growth stock and holding it for years can lead to life-changing returns. Consider that a $1,000 investment in Amazon in 2005 would be worth $81,000 today. 

The growth at Slack, JD.com, and Farfetch may not match Amazon's phenomenal returns, but these companies are riding powerful megatrends in digital communication and e-commerce that could multiply a modest initial investment into a sizable nest egg over time.

10 stocks we like better than JD.com
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and JD.com wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks


*Stock Advisor returns as of August 1, 2020


John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. John Ballard owns shares of Amazon and Tencent Holdings. The Motley Fool owns shares of and recommends Amazon, JD.com, Slack Technologies, and Tencent Holdings. The Motley Fool recommends Farfetch Limited and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


More Related Articles

Sign up for Smart Investing to get the latest news, strategies and tips to help you invest smarter.