With the market hovering near historic highs, many value-minded investors are avoiding stocks that trade at higher multiples than their industries or the overall market. But shunning "expensive" stocks altogether could cause you to miss some growth plays that could crush the market's returns next year. Let's take a closer look at three such stocks -- NVIDIA (NASDAQ:NVDA), Cyberark Software (NASDAQ:CYBR), and Amazon.com (NASDAQ:AMZN).

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Chipmaker NVIDIA's stock has rallied over 220% this year, crushing the Philadelphia Semiconductor Index's 39% gain. It currently trades at 56 times earnings, which is higher than the S&P 500's price-to-earnings ratio (P/E) of 25 but lower than the industry average of 75 for specialized semiconductor makers.

NVIDIA's revenue and earnings are expected to respectively improve 37% and 123% this year, thanks to robust demand for its gaming GPUs, data center GPUs, and automotive CPUs. NVIDIA's market-leading position in high-end gaming GPUs helped it sidestep the ongoing declines in the broader PC market, partnerships with companies like IBM showed how its GPUs could accelerate machine learning and cloud-based workloads in data centers, and demand for better infotainment and navigation systems in cars boosted demand for its Tegra CPUs.

But looking ahead, NVIDIA's revenue and earnings are expected to respectively rise just 16% and 12% next year. That's mainly due to the upcoming expiration of its graphics crosslicensing deal with Intel, which contributes $66 million to its top line every quarter. That might make NVIDIA's multiples look pricey, but the aforementioned tailwinds could offset that slowdown over the next few years.

Cyberark Software

Cybersecurity firm Cyberark Software' stock has risen just 2% this year, which doesn't make it seem like a great growth stock. But that was mainly due to headwinds facing the entire cybersecurity market -- like slower enterprise spending, competition from bigger tech companies, and valuations -- instead of specific problems with Cyberark.

Cyberark is the dominant player in the niche market of privileged access management (PAM). Its services protect organizations from internal threats, like disgruntled employees, instead of countering external attacks. Forty-five percent of the Fortune 100 and 25% of the Global 2000 companies use its services, and the company is one of a handful of cybersecurity firms that is consistently profitable by both non-GAAP and GAAP metrics.

Cyberark looks a bit pricey at 59 times earnings, which is more than double the industry average of 29 for business software companies. That valuation also isn't fully supported by analyst expectations for 34% sales growth and 18% non-GAAP earnings growth this year. Those figures are expected to decelerate to 23% sales growth and 14% earnings growth next year. But as data breaches become increasingly sophisticated and Cyberark expands its sales team and secures more industry partnerships, its growth could accelerate once again.


Shares of e-commerce and cloud giant Amazon more than doubled in 2015 but have only advanced about 13% this year. However, its growth numbers remain strong -- sales are expected to rise 28% this year, and earnings are expected to soar 281%.

That explosive bottom-line improvement was fueled by the growth of AWS (Amazon Web Services), the largest cloud infrastructure platform in the world. AWS' operating income more than doubled annually to $861 million last quarter, offsetting weaker growth at its marketplace businesses and boosting the company's net income by 219% to $252 million.

That bottom-line stability lets Amazon continue growing its lower-margin e-commerce and Prime ecosystems with  loss-leading strategies like streaming video and same-day deliveries and devices that get you into its ecosystem like its Kindle tablets, Dash re-order buttons, and Echo smart speakers. Analysts expect Amazon's revenue and earnings to respectively rise 23% and 89% next year -- indicating that its status as a high-growth stock won't end anytime soon. Amazon's P/E of 175 might look lofty, but it's not that high relative to its earnings growth.

The bottom line

NVIDIA, Cyberark, and Amazon might be too risky and volatile for conservative investors. Each faces potential headwinds. NVIDIA could be hurt by a resurgent AMD or beefed-up Qualcomm, Cyberark could be buried by bundled PAM services from bigger tech companies, and Amazon's AWS' margins could slip as competition heats up in the cloud infrastructure market. However, the strength of their core businesses could help all three companies keep generating double- or triple-digit sales and earnings growth for the foreseeable future. They are stocks to put on your radar for 2017.


This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.