Most retail investors get into the market with the intention of growing their investments. How they go about it and what level of risk they are willing to accept are the main differentiators for what kind of investor they end up being.
History has shown that investing in growth stocks can lead to much more significant returns for a portfolio than dividend stocks. Income-generating investments are good for risk-averse investors, but these types of businesses may not be reinvesting all that much into their future growth and long-term opportunities.
Three growth stocks that have generated some incredible returns for investors over the years are Insulet (PODD 1.23%), Netflix (NFLX -0.63%), and Nvidia (NVDA 6.18%). Here's a look at why these companies have been good buys in the past and some insight into whether they remain solid investments today.
1. Insulet
Insulet makes the Omnipod, an insulin pump that helps people with diabetes manage their glucose levels. With rising cases of diabetes over the years, it's not all that surprising that the company has benefited from significant growth. In 10 years, the stock has risen a staggering 1,220%, eclipsing the S&P 500 and its more modest gains of 169% during that stretch.
Diabetes isn't going away anytime soon, and neither is the demand for insulin pumps. Analysts from Grand View Research project that by 2028, the global insulin pump market will be worth $8.3 billion (up from $4.6 billion in 2021), growing at a compounded annual growth rate of 8.7% until then.
For growth-oriented investors, that means there's still potential for the stock to rise even higher. Although Insulet's price-to-earnings ratio, which is over 1,000, may scare off investors, the company's high gross profit margin of 64% should enable Insulet to strengthen its bottom line as its growth continues. In 2021, the company's revenue came in at just under $1.1 billion, which is an impressive 49% higher than the $738 million it reported just two years earlier.
Insulet is a growing business that I could see getting much bigger in the future, which is why it isn't too late to buy the stock right now.
2. Netflix
Streaming giant Netflix shouldn't be a surprise on this list. The company made a significant transformation over the years, from shipping DVDs to offering content online and making its own TV shows and movies. The stock even outperformed Insulet, posting gains of 1,260% over the past decade.
The company struggled last year amid a decline in subscriber numbers. But in its latest quarter (for the last three months of 2022), it added 7.7 million subscribers, bringing its total count to just under 231 million. And the company is looking at cracking down on password sharing as a way to potentially help increase subscriber count and revenue in the future. Revenue of $7.9 billion last quarter was up a modest 1.9% from the prior-year period. That growth rate will need to improve for Netflix to remain a strong buy in the years ahead.
Netflix stock is down from its highs, and while it could net investors a decent return, it faces a challenging road ahead. More companies are focusing on streaming content, making it a much more competitive landscape for the business. So while Netflix did well over the past decade, I'm not confident it can get anywhere close to delivering the same types of returns over the next 10 years.
I would hold off on buying the stock until the business can improve on its growth rate. At 35 times earnings, Netflix is the cheapest stock on this list, but that isn't enough of a reason to buy it given the challenges it is facing today.
3. Nvidia
Chipmaker Nvidia has benefited from strong growth over the years due to more digitalization of products and seemingly everything nowadays having a microchip. The issue became so bad that there is now a worldwide chip shortage, although some analysts are optimistic that the imbalance may be coming to an end soon, potentially easing up this year.
As a result of that boom, the stock generated incredible returns totaling 6,840% over the past 10 years -- vastly outperforming Netflix and Insulet, which have already proven to be great buys during that period. From $4 billion in sales at the end of fiscal 2012 (its year ends in January) to nearly $27 billion in fiscal 2022, Nvidia's growth is extremely impressive.
However, the stock's rapidly soaring valuation is one of the biggest reasons investors may be hesitant about buying Nvidia stock today. There are also concerns that demand for computers is slowing down, which also means less need for the company's graphics cards.
There are headwinds that could send Nvidia's shares down, and its 90 times earnings multiple certainly doesn't help. But if you're willing to hang on, this could still be a good buy in the long term. However, I certainly wouldn't count on four-figure returns given that Nvidia's market cap is already at a hefty $520 billion.
