These 3 stocks are up by at least 7,400%. Are they still purchases?

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One of the feelings most often shared in investing is “This ship has sailed” or, in other words, “The train has already left the station”. Put simply, many investors are concerned that a significant rise in a stock’s price likely means that they’ve already missed their best chance of making big gains on that stock and just moving on.

Unfortunately, looking at a stock’s price gains in a vacuum, rather than considering where it can go from here, can be one of the biggest mistakes an investor can make, causing them to miss out on opportunities. potentially revolutionary.

We asked three Motley Fool contributors to highlight a stock that has gained over 7,400% (at the time of writing) that offers plenty of buying opportunities on this path – and still is a purchase right now. They came back with Shopify (NYSE: SHOP), Netflix (NASDAQ: NFLX), and Free Mercado (NASDAQ: MELI).

Image source: Getty Images.

Shopify: Helping Businesses Grow Online

Brian withers (Shopify): Shopify has grown from humble beginnings to $ 4.4 billion in annual business, facilitating nearly $ 120 billion in online shopping in 2020. With its fantastic business results, stock appreciation has followed the market. In the year since its IPO, investors could have bought shares of this incredible company for a staggering $ 20 per share, which represents a return of 7437% since 2015.

While this kind of incredible return may not be possible in the future, it is not too late to buy shares of this high-quality company while achieving above-market returns. Let’s see why.

First, the business continues to grow at a rapid pace. Even as the economy opens up and more physical stores are once again welcoming in-person shoppers, the company has seen revenue gains of 57% year-over-year, in addition to a 40% increase in online shopping year over year. The business became even more profitable as the added coronavirus trafficking helped the business reduce costs and improve bottom lines.

Metric

Q2 2020

Q1 2021

Q2 2021

QoQ change

Annual change

Returned

$ 714 million

$ 989 million

$ 1.1 billion

13%

57%

Gross volume of goods

$ 30.1 billion

$ 37.3 billion

$ 42.2 billion

13%

40%

Income from operations

$ 0.4 million

$ 119 million

$ 139 million

17%

34.750%

Data source: Company profit press releases, calculations by author.

Second, this coronavirus “overnight success” has been a long time coming. In 2015, Shopify hosted 165,000 merchants on its platform. Today, a few years later, it’s over 10 times that number – 1.7 million merchants rely on Shopify every day with their online stores. These merchants sell products in 175 countries around the world, giving this online e-commerce player real global exposure to the rise of e-commerce.

Looking only at the small and medium-sized business segment, management estimates its target market to be $ 153 billion. Thus, its annual turnover rate of 4.4 billion dollars represents a small market share of less than 3%.

Finally, Shopify benefits from the success of its merchants on its platform. In addition to the monthly subscription fees for its platform, Shopify takes a small slice of every sale with its Merchant Solutions segment, which accounts for 70% of its last quarter’s revenue. This segment has grown faster than subscription services and could fuel the growth even if new merchants do not join the platform. Given this alignment, the company and its management team have a strong incentive to help these entrepreneurs grow their businesses, which shareholders should love.

Investors may look at this company with a market cap of over $ 175 billion and think the growth is over, but they couldn’t be more wrong. Shopify will continue on its mission to improve commerce for all and, along the way, make shareholders happy too. It is not too late to add this great quality operator to your portfolio.

Adults and children watch TV together on the sofa.

Image source: Getty Images.

Netflix: Yes, its growth story can still continue

Will healy (Netflix): Netflix stock has grown nearly 53,000% since its public debut in 2002. Although it has pioneered the streaming industry, many top companies such as Disney, Amazon, and AT&T have turned to streaming and have become competitors.

Despite past increases and current challenges, new investors could still earn outsized returns as the company remains in growth mode. Grand View Research predicts a compound annual growth rate for global streaming business of 21% through 2028, industry growth that will likely continue to support Netflix. The company also continues to capitalize. According to Parrot Analytics, despite the global market share falling to 65% two years ago, Netflix still has around 50% of the global market.

In addition, over the past year, the total membership has grown by just over 9% to almost 214 million. Additionally, the Q3 2021 earnings call highlighted the popularity of shows such as Squid game and La Casa de Papel. It shows how much he started to succeed outside of the United States.

The company’s financial statements also highlight this expansion. In the first nine months of 2021, revenue of $ 22 billion grew 20% from the same period in 2020. That took profits 103% to $ 4.5 billion over the same period.

During this time, the company also began to overcome a critical financial hurdle. Over the past 12 months, its long-term debt of $ 14.8 billion has fallen by about $ 1 billion. This is notable, as increasing debt and negative free cash flow have characterized its finances over the past few years as they further fund content development.

Yet even as programming development resumed after the pandemic, Netflix managed $ 410 million in free cash flow in the first nine months of this year.

Admittedly, the picture of the third quarter is less rosy. During that time, revenue grew only 16% as its stranded customers resumed their offline activities. Free cash flow also returned to negative with the resumption of content development. In addition, Netflix has grown by around 24% in the past 12 months amid growing challenges related to the decline in its number of blocked customers.

However, its P / E ratio currently stands at around 67. Although it has risen slightly in recent months, it remains well below the triple-digit valuations of recent years, making Netflix stock a relative boon.

Certainly, investors should not expect another 53,000% gain in the next 20 years. Still, with its subscriber base continuing to grow revenue and bottom line, its relatively low P / E and expected industry growth could help new investors capitalize on Netflix’s story.

Person in wheelchair on laptop with other person in cafe.

Image source: Getty Images.

MercadoLibre: the beginnings of fintech and e-commerce

Danny Vena (MercadoLibre): When it comes to missed investment opportunities, a company cited quite often is Free Mercado (NASDAQ: MELI). Many investors have abandoned the Latin American leader in e-commerce and digital payments over concerns over political instability, rampant inflation and poor infrastructure in the region.

While some have slept on the opportunity, investors have had several chances of falling below MercadoLibre’s 2007 IPO price of $ 18. Those who had the foresight to invest in the stock early on were able to increase their earnings by over 8700% (as of this writing). However, those who invested in early 2017 still enjoyed gains of nearly 1000%, illustrating that when it comes to a large company, it is never too late.

This helps put the success of MercadoLibre into context. Even as the company faced the unique challenges of Latin America described above, it has emerged as the clear leader in e-commerce and fintech. Yet the opportunity remains vast and is only just beginning.

Latin America has nearly 662 million people, almost double that of the United States. At the same time, e-commerce sales in Latin America accounted for about 5.6% of total retail sales, less than half the US rate of 13.6%. This shows that there is still a lot of untapped growth.

There is also a significant opportunity for Mercado Pago, the company’s fintech business. Latin America is largely a money-based society and around 70% of the population does not have a bank account. The result is one of the largest unbanked / underbanked populations in the developing world. This factor alone has helped Mercado Pago become one of the leaders in digital payments in the region.

Mercado Pago has partnered with local convenience stores, allowing users to make cash deposits directly into its app. This eliminated the need for a bank account, opening its services to a vast new unbanked clientele. This digital payment method has become so popular that it has made the leap, first to other e-commerce sites and then to physical stores.

MercadoLibre’s results speak volumes. In the second quarter, net sales jumped 103% year over year in local currencies. E-commerce revenues grew 101%, while FinTech revenues jumped 104%. At the same time, operating expenses only increased by 79%, further decreasing in net profit, while operating profit increased by 67%.

The company has nearly 76 million unique active users, up 47% year-over-year. At the same time, the number of items sold jumped 37% and the number of payment transactions jumped 80%.

These growth indicators illustrate that MercadoLibre still has a long way to go. Even after an epic race, investors who buy the stock today will almost certainly be richly rewarded.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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