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3 Growth Stocks That Could Double

By Brian Feroldi, Dan Caplinger, and Jamal Carnette, CFA – Updated Sep 24, 2018 at 3:03PM

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If you're in looking for market-beating returns, these three companies could have a place in your portfolio.

In the current low-growth environment, it's increasingly hard to find companies consistently delivering explosive top-line results. Therefore, it's important for growth-oriented investors to quickly identify growth stocks poised to outperform before the greater market catches on. With that in mind, we asked three Motley Fool specialists to pick a growth-stock with a history of performance that are in a position to continue providing strong top-line results. Their picks, Proto Labs (NYSE: PRLB), Shopify (NYSE: SHOP) and Drew Industries (NYSE: DW) and investment thesis are listed below. 

The best way to play 3D printing

Brian Feroldi (Proto Labs): Nearly every company that operates in the 3D printing space has been mauled over the past two years. Included in that list is Proto Labs, even though its business model has nothing to do with manufacturing or selling the printers themselves. 

Image source: Getty Images.

Instead, Proto Labs specializes in rapid prototyping and custom manufacturing. The company's custom software greatly speeds up the product-development process, allowing them to put a real part in their customers' hands in as little as one day. That speed allows developers to redesign their products at a much faster pace so they can bring their products to market sooner.

Proto Labs' unique solution has proved to be quite popular with developers, which is why the company's revenue has grown by double-digit rates for years. The markets had previously rewarded that growth with a high multiple, but the general sell-off in 3D printing stocks combined with the company's cautious fourth-quarter guidance have pulled its P/E ratio down to an all-time low. 

PRLB PE Ratio (TTM) Chart

PRLB PE Ratio (TTM) data by YCharts

While near-term results could be rocky, over the long term the company believes that its addressable market opportunity exceeds $20 billion. If true, that puts its current market share at just over 1%. If management can continue to gobble up market share and revenue at double-digit rates, I could easily see shares returning to their former glory.

The same tailwinds that made Amazon a $400 billion juggernaut also benefit Shopify

Jamal Carnette, CFA (Shopify): Shopify may not be "the next," but it may currently be more attractive for growth-oriented investors. Although it's doubtful the online retail platform becomes a nearly $400 billion empire like Jeff Bezos' company, it's likely the same conditions that propelled Amazon to one of the largest companies in the world will provide tailwinds that will also enrich Shopify investors for years to come.

For starters, the e-commerce story is far from being over. In the second quarter, the U.S. Census Bureau reported that e-commerce is only 8.1% of total adjusted retail sales. However, while total retail sales increased by only 2.3% on a year-on-year basis, e-commerce increased by 15.8% during the same timeframe. E-commerce is stealing market share by growing at a faster rate than overall retail sales, and this trend should continue going forward.

Unlike Amazon, which sells products through its site, Shopify provides the platform for websites to sell direct-to-consumer on company-hosted websites. This allows smaller businesses without the coding and developing skills to build an online store from the ground up. By providing the critical tools to help businesses thrive, this small-cap stock is better aligned with vendors than Amazon's marketplace and should continue to see strong merchant growth as a result thereof.

Even though the stock has exploded approximately 65% in 2016, the company continues to drive higher. In the recently released third-quarter financial report, the company noted that year-on-year revenue increased 88%,even higher than consensus expectations. It also reported a narrower-than-expected EPS loss and raised its full-year revenue forecast. Currently, Shopify is a $4 billion company, and the combination of e-commerce growth and vendor alignment should continue to boost Shopify's fortunes.

An easy ride to profits

Dan Caplinger (Drew Industries): Most people wouldn't think of the recreational-vehicle industry as a hotbed of growth, but companies in the sector have actually seen considerably stronger conditions in the RV market. Drew Industries is a key player in the industry, providing many of the components and systems that go into recreational vehicles.

Drew posted extremely strong results in its most recent quarter, including sales increases of nearly a fifth and a two-thirds jump in net income. The company cited upticks in wholesale shipments of towable RVs in helping boost the prospects for Drew's original equipment manufacturing segment, while providing aftermarket components has also become a lucrative driver of growth for Drew.

The main reason why Drew Industries has such strong potential is that a new generation of customers is looking for recreational vehicles that will meet their needs. By helping RV manufacturers integrate new features into their products that will appeal to people of all ages and across all geographies, Drew is tapping into a source of increasing demand.

With about $3,000 of every travel trailer and fifth-wheel RV composed of parts and components provided by Drew, investors have an opportunity to ride the rising wave higher as the company builds strong relationships with manufacturers and keeps increasing its penetration into the RV market.

Jamal Carnette owns shares of Shopify. The Motley Fool owns shares of and recommends, Proto Labs, and Shopify. The Motley Fool recommends Drew Industries. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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