The stock market is a powerful tool for generating wealth over long periods of time. With an average return of around 10% per annum, you can reasonably expect to double your money every seven years by simply sticking to a diversified index fund.
But some investments get there much faster.
High growth rates, coupled with rising profitability, could form the basis for yields that hamper the broader market. Below we look at some stocks, Boston Beer (NYSE: SAM), Octa (NASDAQ: OKTA), en RH (NYSE: RH), which has increased these trends by about 500% over the past three years.
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1. Boston Bear: make product line adjustments
Three years ago, Boston Beer endured a rough problem in its business. Beer sales declined in the 2017 financial year as core brands such as Samuel Adams and Angry Orchard lost ground due to the flood of microbreweries entering the beer space. These shrinking franchises are only partially offset by the growth in non-traditional liquor brands such as Twisted Tea and Truly Hard Seltzer. Sales fell 5% to $ 863 million that year.
But the company was looking for something with its non-beer beverages, which caused huge growth. Volume has increased by 39% over the past year, led by rising demand in both the Truly and Twisted Tea franchises. Boston Beer grew the broader industry in 2020, with annual sales of $ 1.7 billion.
The outlook for the stock looks more challenging after the rise of 500% since April 2018. Every major brewery has competitive products on the market today, and the overcrowded industry has weakened Boston Beer in the short term. But it would still be a mistake to bet on a company with a proven track record of innovation and a dominant hold on the fastest growing niche of the market.
2. RH: rising profitability
The luxury specialist RH performed well three years ago. Fiscal 2018 sales increased 5% compared to a 12% increase in the previous year, thanks to steady gains in market share in its core categories. RH’s profitability told an even more positive story, with margins reaching a new record of 12% that year.
Things have gotten a lot better since then. Last year, RH’s sales increased by 8% with the growing demand in the domestic industry. The profit margin increased by more than seven percentage points, to a whopping 22% of sales. “This is an operating margin that has never been seen before in the home furniture market,” CEO Gary Friedman told investors in March.
RH Operating Margin (TTM) data by YCharts
The outlook is just as bright for 2021, and sales and profitability will rise again. However, RH has a much bigger price, as sales end up with only $ 6 billion in the US market. Revenue was just $ 3 billion last year, so it’s a long run.
3. Octa: Increase cash flow
Okta submitted its first annual report as a public enterprise about three years ago. The digital identity management business then had some attractive investment characteristics, including a growing roster of enterprise clients and a large number of recurring revenue. Yet he has just concluded his third year of net losses.
The next three years will not change the negative earnings picture, but investors are excited about Octa’s brightening growth potential. Management today can target a significant portion of a $ 80 billion market, compared to the estimated $ 17 billion annual opportunity in its 2017 digital identity niche.
Cash flow trends are also encouraging as they provide a better overview of the earnings power for a subscriber-based cloud business. Free cash flow increased to 13% of sales last year from 6% in the previous year and negative by 2% in fiscal 2019. More steady gains in this figure should support positive investors’ returns, as Octa the next few years start generating positive net earnings. years.
Wall Street professionals are always looking for the next obscure stock that can deliver remarkable returns. But in the case of Octa, RH and Boston Beer, the best investment idea might be to just stick with the winners.
This article represents the opinion of the author, who may not be in agreement with the ‘official’ recommendation position of a Motley Fool premium advisory service. We are furry! Questioning an investment thesis – even one of our own – helps us all to think critically about investments and to make decisions that help us become smarter, happier and richer.