When you're evaluating companies and their growth potential, you need to consider many variables: market opportunity, product innovation, and competitive strengths are just a few important things to watch. But nothing can replace a high-quality management team with a forward-looking vision when it comes to capitalizing on growth opportunities, and these three companies are led by the right CEOs for their long-term growth.
The barista to the world
Howard Schultz has led Starbucks (SBUX 0.93%) from a small group of coffee stores in Seattle to a global empire with more than 19,200 stores around the world and growing. Schultz practically invented specialized coffee as a popular product category, and he has been enormously valuable in terms of building the Starbucks brand and its differentiated customer experience through the years.
Schultz is well known for his attention to detail and focus on innovation, and this allows Starbucks to deliver above-average profit margins for investors. New products and distribution channels bode well for the company in developed countries like the U.S., while new store openings offer plenty of room for growth in emerging markets.
The company has made a series of important acquisitions over the last few years, including Evolution Fresh for $30 million in November 2011, La Boulange for $100 million in June 2012, and Teavana for $600 million in November 2012. With these deals, Starbucks is growing into segments like juice, pastry, and specialized tea, and this will provide more options and flexibility for its customers around the globe.
The China/Asia Pacific region looks especially encouraging in terms of growth opportunities over the coming years. Starbucks delivered a 29% annual increase in revenue in the region during the last quarter fueled by a 9% growth rate in same-store sales.
Schultz and his management team believe that China will soon become Starbucks' second biggest market behind the U.S. and, judging by customer response, the company is doing the right thing by expanding overseas.
Healthy and growing
Whole Foods Market (WFM) has been one of the major beneficiaries of the trend toward healthier eating habits over the last several years, and the company's co-founder and co-CEO John Mackey has been a huge inspirational force for the company and its employees during that process.
Mackey has led the company from a single store in Austin, Texas, founded in 1978, to a corporation with a market capitalization above $23.7 billion and 355 stores at the end of the last quarter. Importantly, he has done it while staying true to his values; Mackey is a proponent of "conscious capitalism," a more holistic and humanitarian approach to business and the economy.
Whole Foods has a smart incentive program aligning employees with shareholders by allowing them to participate in productivity increases. When costs in relationship to revenues go down, employees receive a percentage of those savings, so it's in their best interest to make sure that things are running smoothly and efficiently. The company's innovative culture is doing wonders for shareholders, too: Whole Foods has operating margins above 6.5%, more than double the industry average.
Mackey believes the company's addressable market is more than 1,000 stores in the U.S alone. Same-store sales are still going strong with a 7.5% increase for the last quarter, so new openings are not cannibalizing sales at existing locations. In addition to that, international markets are still practically untapped, so Whole Foods is well positioned for growth over years to come.
You say you want a revolution
Elon Musk likes to think big; he has already make important inroads in areas like electronic payments, solar energy, and space travel, among others. And he is also on the path to revolutionizing the automobile industry with Tesla (TSLA -1.06%).
The Model S has received numerous awards and recognitions such as the 2013 World Green Car of the Year, 2013 Motor Trend Car of the Year, Automobile Magazine's 2013 Car of the Year, and has received the highest safety rating of any car ever tested by the National Highway Traffic Safety Administration. Demand has exceeded production capacity over the last quarter, so Musk is proving to consumers that electric vehicles can be not only ecological but also very desirable products.
The company has also made remarkable progress on the financial front. Tesla has dramatically improved its financial position over the last few quarters, and the company is now profitable on a non-GAAP basis. Management expects to be non-GAAP profitable and generate positive cash flow from operations every quarter this year, excluding any benefit from zero-emission-vehicle credits.
Tesla is firing on all cylinders, but the stock is looking a bit overcharged after rising more than 510% in the past year. Musk himself has admitted that the market is being "very generous" with the company and giving it a lot of credit for future execution, so waiting for a pullback before taking a big position in the company sounds like a wise idea.
On the other hand, Tesla provides a fairly unique opportunity to bet on the future of electric vehicles by riding side by side with one of the most visionary entrepreneurs and business leaders in the world. Those kinds of growth opportunities rarely come for a cheap price.
Bottom line
When it comes to investing in companies with big and sustainable growth potential, having the right management team on board is of utmost importance. Companies like Starbucks, Whole Foods, and Tesla are managed by innovative CEOs with a long-term vision for growth, which is a promising sign for their futures.
