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11

America's Next Top Growth Stock

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Growth stocks are the beauties of the stock world, plain and simple. They're exciting, they have good stories, and they can make you a lot of money.

But for all their beauty, growth stocks are also the prima donnas of the market. They can be erratic, they don't always live up to their billing, and they tend to attract a shareholder base that's ready and willing to run at the first signs of slowdown. For those reasons, caution is certainly in order when you enter the world of growth investing.

Fortunately, The Motley Fool's CAPS service brings us the collective intelligence of a community of more than 145,000 investors and is a great resource for separating the Jessica Albas from the Jabba the Hutts. Each of the stocks competing for this week's top spot has a market cap of at least $100 million and grew its earnings per share by an average of 15% or more per year over the past three years. So let's go ahead and meet our contestants.

Company

3-Year EPS Growth Rate

Price-to-Earnings Ratio

CAPS Rating
(out of 5)

Ebix (Nasdaq: EBIX  )

64%

17.8

*****

Research In Motion (Nasdaq: RIMM  )

54%

17.0

***

VMware (NYSE: VMW  )

36%

68.1

****

Netflix (Nasdaq: NFLX  )

27%

31.5

***

Apollo Group (Nasdaq: APOL  )

17%

15.6

**

Sources: Yahoo! Finance and CAPS as of Dec. 23.

Growth without good looks
Apollo Group has racked up major growth over the past decade-plus thanks to its successful University of Phoenix subsidiary and a thirst for knowledge and advancement in the U.S. However, CAPS members have become skittish about the stock thanks to legal troubles at the company.

During Apollo's fiscal fourth quarter, it took a pre-tax charge of $80.5 million related to a lawsuit over allegedly shady practices in paying its employees and filing claims with federal student aid programs. Another potentially significant lawsuit over the company's handling of government student loan funds is still in the discovery stage, but could impact Apollo's all-important access to Title IV federal funding. While these lawsuits may turn out to be a passing matter for Apollo, they've made many CAPS members cautious about the company's stock.

Research In Motion just reported stellar third-quarter results, and the company's stock may be trading at a low multiple that was unheard of just a couple of years ago, but the CAPS community isn't sold on the stock's prospects.

Could that low multiple have something to do with the rash of BlackBerry outages recently? Or is it more related to tough competition from Apple's (Nasdaq: AAPL  ) iPhone and new smartphone offerings from companies like Motorola? Perhaps it's a bit of both, but the stock's three-star rating suggests there are better opportunities out there.

Facing an influx of competition on the digital front, does Netflix deserve to be trading at more than 25 times expected 2010 earnings? Many CAPS members seem to think not. Of course, if rumors of an Amazon.com (Nasdaq: AMZN  ) buyout prove to be true, Netflix shareholders could soon be cashing out and leaving the question of the company's prospects to Amazon shareholders.

Strutting their stuff
While BlackBerry smartphones and Netflix movie rentals are proving uninspiring to CAPS members, the virtualization business at VMware has caught the eye of quite a number. VMware may be the most expensive stock on our list based on trailing price-to-earnings ratio, but many members expect future growth will show that today's price is more than reasonable for the leader in this burgeoning field.

But while VMware's four-star rating should be enough to put it on investors' radar, it wasn't quite enough to allow it to top this week's top growth stock, Ebix.

As is typical of a Motley Fool Rule Breakers pick, Ebix has shown scorching growth in recent years as it blazed a pioneering course in its industry. Ebix provides software for the insurance industry that allows brokers, underwriters, and agents to manage and access data, making them more efficient and effective. The stock was recently highlighted as a potential recession-buster by fellow Fool Jordan DiPietro.

CAPS members are no less excited about the stock's prospects. Nearly 700 members have given the stock a thumbs-up, compared with just 21 who think it will lag the rest of the market. CAPS All-Star nrlbuild added a thumbs-up earlier this month, saying:

I like the fact that this company is a growth story, has a large market opportunity, a track record of capturing market share over the last couple of years, and is relatively small in terms of revenue... they appear to have a lot of headroom. The insurance markets are not going away or getting smaller, and are probably(hopefully) in need of their product.

Now go vote!
Do you think Ebix has what it takes to be America's next top growth stock? Head over to CAPS and let the rest of the community know what you think.

There are a lot of voices offering stock advice, but Nick Kapur thinks that Jim Cramer's is one voice you shouldn't listen to.

The Steve Jobs Betrayal
You may already know that in the final year of his life, Jobs revealed a stunning betrayal — and told his biographer, "I will spend my last dying breath... and every penny of Apple's $40 billion in the bank to right this wrong." What was it that made Jobs so irate — and why could it make a few in-the-know investors some major profits over the coming months and years?

Enter your email address below to find out what made Jobs so enraged!

Ebix and VMware are Motley Fool Rule Breakers picks. Apple, Amazon.com, and Netflix are Stock Advisor recommendations. Apollo Group is an Inside Value pick. The Fool owns shares of Ebix. Try any of our Foolish newsletters today, free for 30 days

Fool contributor Matt Koppenheffer does not own shares of any of the companies mentioned. You can check out the stocks he's keeping an eye on by visiting his CAPS portfolio, or you can connect with him on Twitter @KoppTheFool. The Fool's disclosure policy would surely win America's Next Top Disclosure Policy, but for some reason there's no such contest.

 


Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 24, 2009, at 11:32 AM, InfoThatHelp wrote:

    Rim blows.

  • Report this Comment On December 24, 2009, at 1:16 PM, yankeegil wrote:

    I am disappointed that you use this format to promote

    rumors. I am referring to AMZN/nflx . Why would

    AMZN who are sharp operators pay 33 times earnings

    for a company that owns nothing but a list of people

    who rent videos when AMZN probably already has

    90 per cent of those people on its own list already.

    and Bezos didnt get rich buying at the top of a run.

    Are you just helping with the short squeeze?

  • Report this Comment On December 24, 2009, at 4:24 PM, InfoThatHelp wrote:

    Despite the enormous commercial and individual successes fuelling Apple's successful innovative products and services by simplifying advanced sophisticated technologies with greatly ease of use and intuitive engineering of user experiences, the general smartphone and computer industries still lag generations behind Apple in everything under the sun, in areas such as Rim blackberrys and Rim service networks which are still unnecessarily over-complex because Rim is still using archaic technologies and mindsets comparable to the 18th grandfather clocks which have long been replaced by today's Rolex or Patek-Phillip wristwatches. Of course the grandfather clocks still work, but since when have you see a man or woman using grandfather clocks to tell time?

    Small wonder Rim blackberrys are so junky, and the Rim service network beginning to approach daily crashes as there are more junky blackberrys clogging the networks which eventually will start to albatross the underlying carrier networks crashing everybody. Rim service networks should be outlawed. The networks are for built for public use, not for Rim to burden on with their grandfather clock outdated practises. It was obvious that the blackberry users have dug their own coffins using old outdated damaging email only blackberries to crash networks, it was up to Rim to be responsible in not selling solutions like the Rim service network and Rim Messager which updates are so complex it's like trying to change a wheel of a car while it is going at 60 miles per hour on the highway, which is totally illegal from a highway criminal act point of view, yet Rim is applying to all Rim blackberry Messenger users in the world right now !!! Where is the common sense for Rim ?? Much worse yet, where is the common sense in all the people who buy and use this Rim blackberry Messenger? I know very well how internally Rim is so afraid of the Rim OS, BES and BIS that every time Rim engineers and programmers make software changes they do it with a prayer and keep their fingers cross. And yes we had an exact case where Rim had 2 system crashes hitting millions of customers in 6 days. The frequencies of Rim system crashes will increase exponentially in frequency and severity because Rim is going to fly off its rail like a 120 year steam engine train loaded with enriched plutonium. Enterprises and individuals are best adviced to abandon the train if they can.

  • Report this Comment On December 24, 2009, at 10:22 PM, AaronGaz wrote:

    Dear James(Infothatdonthelp)Apple

    You are getting more hilarious by the post. Give it a rest buddy, we get it, you don't like them.

    They are a good company, they make boring functional phones that are mainly a good business tool and they do it very well.

    If you want flash and games Apple rules the day, why does it have to be one or the other?

    If I had to make an analogy:

    RIM = Ford F150

    IPhone = Corvette

    How can you compare them, they are transportation devices with completely different uses. Every time someone praises the Vette, do people say Ford is going to go out of business?

    Exactly.

  • Report this Comment On December 25, 2009, at 11:45 PM, InfoThatHelp wrote:

    Ditch Rim. Take a closer at Rim now, then ditch Rim before it is too late.

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Related Tickers

5/25/2012 3:59 PM
EBIX $17.93 Down -0.04 -0.22%
Ebix CAPS Rating: *****
NFLX $70.22 Down -0.05 -0.07%
Netflix CAPS Rating: **
RIMM $11.00 Up +0.29 +2.71%
Research In Motion… CAPS Rating: *
VMW $94.02 Down -1.41 -1.48%
VMware CAPS Rating: ***
AAPL $562.29 Down -3.03 -0.54%
Apple CAPS Rating: ***
AMZN $212.89 Down -2.35 -1.09%
Amazon.com CAPS Rating: ***
APOL $33.12 Up +0.61 +1.88%
Apollo Group, Inc. CAPS Rating: **

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