How many have looked back at Shopify Inc. (SHOP -4.24%) mind-boggling run up in the past year or so and wished you'd bought the stock before it started? Certainly, we all hope to find stocks that have similar potential to soar. After all, a 142% gain in one year is nothing to sneeze at.
Fret not, for the stock markets abound with opportunities that are flying under Wall Street's radar. Three of our contributors have identified Twilio Inc (TWLO -1.54%), Zillow Group (Z -0.08%) (ZG -0.39%), and Trinseo S.A. (TSE -1.78%) as stocks that could soar as much as in the next 12 months as Shopify did in the last 12. Here's why.
Growing in the cloud
Tim Green (Twilio): Cloud communication platform provider Twilio went public less than a year ago, and although the stock now trades at nearly double its IPO price, it is also down nearly 60% from its high. The company is growing extremely rapidly, but it's producing big losses along the way, and the initial euphoria that pushed the stock up eventually faded.
Still, Twilio is producing some impressive numbers, and if the company can keep growing quickly the stock could recover in a big way. Revenue surged 60% year over year during the fourth quarter, with full-year revenue jumping 66%. Its platform has over 36,000 active customers, and notable customers include Netflix, Airbnb, Uber, and Dell. Uber, for example, uses Twilio to send customers text messages updating them on the status of their rides.
With a market capitalization of around $2.5 billion, annual revenue of $277 million, and an annual GAAP net loss of $41.3 million, Twilio is without question an expensive stock. But if the company can keep broadening its customer base, the stock could go much higher. An acquisition isn't out of the question either, as any large cloud-infrastructure or software company could be interested in Twilio's platform. It's a risky stock because of its high valuation, but its rapid growth path should put it on every growth investor's radar.
Real estate disruption
Jordan Wathen (Zillow Group): I see Zillow as a binary bet on the future of how real estate is bought and sold. It may be an all-or-nothing business, where your investment results either in gains of several multiples, or a big fat zero.
What's clear, at least for now, is that Zillow and its affiliated websites are becoming the go-to destination for people who want to buy or rent homes. In the fourth quarter of 2016, Zillow saw an average of 140.1 million monthly unique visitors to its mobile apps and websites.
The challenge for Zillow is finding a way to carve out a piece of the dollars and cents behind every transaction. Real estate remains a product that sellers and their agents can afford to advertise, as evidenced by the fact that it's one of the few things still touted heavily by ads in printed publications. As online advertising is often priced much like merchandise sold at auction (the second-highest bid is the one that determines the price), marginal shifts in listings and agents can lead to proportionally larger increases in revenue and earnings.
This company grew its profits 140% last year
Neha Chamaria (Trinseo): Chances are, you've never heard of Trinseo. The chemicals space isn't eye-grabbing, and Trinseo is, perhaps, among the least-known stocks within that industry. But when you find out how fast this company is growing, you won't want to ignore it anymore.
Trinseo was carved out of giant multinational Dow Chemical in 2010. Its key products include performance plastics, latex, and synthetic rubber, which go into a variety of products across a range of industries, including automotive, construction, healthcare, packaging, and electronics.
The thing with Shopify is that though its revenue is growing by leaps and bounds, the company has yet to turn a profit. It's pretty much the reverse in Trinseo's case: Top line growth has been muted, but its profits and cash flows are rising rapidly. At the end of the day, a company needs to convert its sales into profits to support its stock price.
With double-digit-percentage operating margins, return on equity, and return on investment, Trinseo has everything going right for it. The stock has jumped a whopping 80% in the past year, but its price-to-earnings ratio of 9 and price-to-cash-flow ratio of about 6.5 aren't over the top for a company on such a strong growth trajectory. Given that, Trinseo's shares could very well continue to soar.