In the stock market, investors are always looking for the “next big thing”. Specifically, they are always looking for that one stock that is relatively small today, but which has the potential to be huge one day. In the process of going from small to huge, that stock rewards investors with multi-bagger returns.
Most stocks don’t make that cut. After all, there are thousands of stocks out there. Only a handful of them have market caps in excess of $100 billion. That’s because the road from small-cap to large-cap is tough and 99% of stocks don’t make it.
But some stocks do make it, and those growth stocks are the ones that end up rewarding early investors with multi-bagger returns. See Facebook (NASDAQ:), Amazon (NASDAQ:), Netflix (NASDAQ:) and Microsoft (NASDAQ:).
With this in mind, I’ve put together a list of 6 relatively small growth stocks that have a realistic opportunity to be the next big thing, or the next Facebook, Amazon, Netflix, Microsoft, so on and so forth. Will all of these stocks make it to $100 billion-plus valuation territory? Probably not. But a portfolio of the following growth stocks should perform very well in the long run.
Market Cap: $34 billion
At the top of this list of growth stocks, we have hyper-growth e-commerce solutions provider Shopify (NYSE:).
In short, retail is doing two things right now. It’s going direct, because brands and retailers can now reach consumers directly and without middle-man friction thanks to the internet. It’s also becoming decentralized, because the internet has connected everyone at the same time, so anyone can sell anything to anyone. Thus, direct decentralized retail is the future of retail.
Shopify is the backbone of this future. The company provides commerce solutions which enable and empower the hundreds of thousands of sellers who comprise this direct decentralized retail model. Yet, gross merchandise value through Shopify stores measured just ~1.5% of global e-retail sales last year. Inevitably, as the direct decentralized retail model gains mainstream traction, Shopify’s share of the growing e-retail market will expand.
This expansion will drive huge revenue growth, which will come on top of big gross margins and a falling opex rate to drive even bigger profit growth. That profit growth will power SHOP stock materially higher in the long run.
The Trade Desk (TTD)
Market Cap: $11 billion
Industry: Programmatic Advertising
Right behind Shopify on the list of growth stocks, we have programmatic advertising leader The Trade Desk (NASDAQ:), a company which can leverage secular automation and AI tailwinds to become a very important player in the global advertising market.
In the advertising market, as is true in most markets, things are being automated. This includes the automation of ad spend — dubbed programmatic advertising — where companies are increasingly leveraging data and AI to make ad spend smarter, quicker and more efficient than ever before.
The Trade Desk is at the forefront of this programmatic ad spend shift. The company operates a market-leading and best-in-class programmatic ad spend platform which helps advertisers more optimally allocate their digital ad dollars. But gross ad spend on The Trade Desk in 2018 measured less than 1% of global digital ad spend.
Thus, there is tremendous runway over the next several years for TTD to keep growing at a robust rate and turn into a very important player in the global advertising market, which is marching towards $1 trillion in annual revenue. Ultimately, that means TTD stock will one day have a market cap far in excess of today’s $11 billion market cap.
Market Cap: $15 billion
Industry: Cloud Security
Another hyper-growth tech stock that has an opportunity to be the next big thing is Okta (NASDAQ:).
Okta is a cloud company which has built a nimble, adaptive and high-quality identity-based security solution that enables any individual in any enterprise to securely access any software service through any device. The big thing here is that Okta’s security solution is identity-based, meaning that it turns individuals in an ecosystem from a participant in that ecosystem, to part of the defense barrier for that ecosystem. This pivot basically means that so long as the individual is secure, the whole system is secure, and this opens up a whole new level of flexibility which enterprises desperately need today, but didn’t think was possible.
The growth angle here is that Okta exited last quarter with just 6,550 customers. There are nearly 6 million employer businesses in the U.S. alone, almost all of whom are migrating to the cloud and need a flexible, adaptive and identity-based security solution. As such, the growth runway for Okta in the U.S. alone is robust — and even more robust if you take into account the international opportunity.
In other words, Okta should be able to grow both revenues and profits by leaps and bounds over the next several years. All that growth will inevitably push Okta’s market cap to levels far above $15 billion.
Market Cap: $22 Billion
Industry: Athletic Apparel
Taking a detour from the technology sector, we now have Lululemon (NASDAQ:), a hyper-growth athletic apparel company which could one day turn into a smaller version of Nike (NYSE:).
Lululemon jumped onto the athletic apparel scene as a high-quality producer of women’s yoga apparel. The company developed a great reputation and strong brand equity in the women’s yoga apparel market. Then, they leveraged that reputation and brand equity to expand into the broader women’s athletic apparel category. The expansion was a huge success, and Lululemon maintained its high-quality reputation and strong brand equity. They subsequently again leveraged those features to jump into the men’s market, and that expansion has experienced similar success.
Broadly, then, Lululemon has developed a high-quality reputation and built strong brand equity in the athletic apparel space, two things which have enabled it to consistently expand reach and share in the market. This trend will persist for the foreseeable future, and the long term potential for Lululemon is to one day morph into a Nike-type company.
Nike has a $100-billion market cap. Lululemon has a market cap down around $20 billion. Thus, if this growth stock continues to expand share and reach, LULU stock is a multi-bagger in the making.
Market Cap: $11 Billion
Industry: Over-The-Top (OTT) Video
Back to the tech sector, we have rapidly expanding OTT video platform and service aggregator Roku (NASDAQ:), a company which — if it plays its cards right — could one day be the cable box of an exceptionally valuable global OTT video market.
The dynamic in the OTT video market is one defined by rapidly rising supply and demand. Demand is rising because consumers are ditching pricing, programmed linear television packages, for cheaper, more flexible on-demand internet television services. Supply is rising because content providers are chasing that demand and pivoting into the internet TV realm by creating their own streaming services. Thus, supply and demand are both surging higher.
Someone has to connect all that supply with all that demand. That’s what Roku does through its OTT video service aggregation platform. Importantly, Roku does this aggregation better than anyone else, since: 1) Roku is content-neutral and has no complications with accessing any particular service, 2) Roku is winning the smart TV battle by being in more smart TVs than anyone else and 3) Roku’s UI is super intuitive and consumer-friendly.
So long as those three things remain true, Roku projects to be the cable box of the OTT video market and one of the biggest growth stocks of the stock market. One day, this market will be huge in terms of both subscription dollars and advertising dollars. As the cable box of the market, Roku will win its fair share of both sub and ad dollars, implying that ROKU stock will head significantly higher in the long run.
Market Cap: $30 Billion
Last, but far from least, on this list of potential next big thing growth stocks is Square (NYSE:), the payments processor that has a unique opportunity to become a very important and disruptive player across the entire payments and financial services markets.
Square started out as a payments processor to help facilitate non-cash payments in the brick-and-mortar channel so that small to medium sized retailers could keep up with the consumer shift away from cash. The company has since become much more. Today, in addition to helping facilitate non-cash payments in the brick-and-mortar channel, Square has extended its reach into the e-commerce world, developed a consumer cash transfer app, built out a payroll management software service, launched a lending business and so much more.
In other words, Square has innovated its way into becoming an important player across the entire payments and financial services ecosystem. This innovation has laid the groundwork for tremendous growth over the next several years, as Square’s many nascent businesses scale share across multiple different verticals. Most of these verticals are very high margin, too, so most of that growth will translate into even bigger profit growth.
Net net, Square is a payments company that projects as a huge revenue and profit grower over the next several years thanks to the company’s ability to innovate across multiple different secular growth markets. Ultimately, all that profit growth will push SQ stock way higher in a multi-year window.
As of this writing, Luke Lango was long FB, AMZN, NFLX, SHOP, TTD, OKTA, NKE, ROKU and SQ.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.