When stocks maintain sales growth and returns on invested capital over long periods, they can be tremendous compounders. Let’s discuss some stocks for life-changing returns with multibagger potential.
First, these stocks must have a long growth runway, possibly over a decade. Thus, these stocks must have secular tailwinds or idiosyncratic factors supporting growth. For instance, secular growth opportunities like e-commerce or idiosyncratic expansion options like new locations.
Secondly, these stocks must have a proven track record of growth. Using this Finviz Screen, I selected stocks that had grown revenues by 20% annually over the past five years. Also, I filtered for stocks that grew sales by 5% quarter-over-quarter in the most recent earnings.
Lastly, I checked for forward growth prospects. After all, we buy stocks for their potential, not their past performance. These three stocks will grow EPS by 20% annually in the next five years and are top stocks for life-changing returns.
Dutch Bros (BROS)
This drive-thru beverage chain could be among the best stocks for life-changing returns. Dutch Bros (NYSE:BROS) sells customizable iced, hot and blended beverages, with coffee making up 50% of the menu mix.
If the company executes the growth plan laid out at the ICR Conference 2024, it will be among the best stocks for life-changing returns. The company has been a growth engine, doubling total shops and quadrupling company-operated shops since fiscal year 2019. As a result, revenues grew from $238.4 million in FY2019 to $965.8 million in FY2023.
By the end of 2023, the company had 831 shops, 542 company-operated and 289 franchised. This leaves a massive growth runway as the chain expands across the U.S. Management targets over 4,000 shops in the long term, focusing on shops offering drive-through convenience.
Besides new shops, the company plans to earn more revenue from current customers. It intends to leverage its rewards program and use more targeted offers. Lastly, the company is banking on increasing scale to drive operating leverage, targeting contributions margins above 30%.
Considering the combination of new shop openings and improving margins, Dutch Bros could be one of the top stocks for life-changing returns. Stifel Nicolaus believes in the growth story and has a $40 price target and a “buy” rating.
Shopify (SHOP)
With the winds of e-commerce adoption behind its back, Shopify (NYSE:SHOP) still has multibagger potential going forward. It has been one of the best Canadian-based stocks, but the run isn’t over.
Shopify is crucial in supporting merchants who sell online and offline worldwide. Through its platform, merchants can manage their business and sell wherever buyers are. While the platform has traditionally been a hub for small businesses, it’s now attracting larger brands. Through Shopify Plus, the company is pursuing the largest retailers and brands in the world.
It has developed a modern retail stack that even the largest retailers can use. Subscription businesses like Dollar Shave Club use the platform to sell their products. Industrial companies like Carrier Global (NYSE:CARR) have joined the service to sell their business-to-business products. Increasingly, brands like Supreme are outsourcing their e-commerce stack to Shopify.
Today, Shopify is the second largest checkout in the U.S., behind Amazon (NASDAQ:AMZN). Due to its e-commerce dominance, revenue growth has been outstanding. In the latest quarter, it grew revenue 26% and generated $905 million in free cash flow. Growth could accelerate as Shopify moves upmarket and targets large retailers and enterprises.
Zscaler (ZS)
According to Janney Montgomery Scott, cybersecurity is one of the major investment themes for the next decade. The rise of state actors pursuing geopolitical wins through cyber warfare and hackers using AI has increased the need for robust defenses. Statista projects the cybersecurity market will grow at a 10.56% compounded annual growth rate between 2024 and 2028.
Zscaler (NASDAQ:ZS) is one of the best well-positioned stocks for life-changing returns. Notably, it benefits from the Securities and Exchange Commission disclosure guidelines enacted last year. These guidelines, plus the record ransomware attacks in 2023, have made Chief Technology Officers prioritize spending on cyber security.
Besides, the government is working on its cybersecurity defenses as state-sponsored attacks surge. In 2021, President Biden issued an executive order urging all federal agencies to adopt zero-trust security architecture. This directive favors Zscaler since FedRAMP has already approved it. Already, the company is securing 12 cabinet-level agencies.
After growing revenues by over 40% in the last five years, Zscaler’s growth story is far from over. Management expects FY2024 revenues of $2.118 billion to $2.122 billion, representing at least 30% growth. Over the long term, the demand for cybersecurity from governments and enterprises will grow, ultimately benefiting Zscaler.
On the date of publication, Charles Munyi had a long position in ZS but did not hold (either directly or indirectly) any positions in other securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.