Online retailer Wayfair (W -3.72%) is retooling the market for home goods and furniture, and its investors are getting rich in the process. Share prices have doubled in the first five months of 2017 and should continue to rise as Wayfair continues to plot a route toward sustainable profits.
But Wayfair isn't the only high-growth opportunity in this market -- and maybe not even the best one. We asked three of The Motley Fool's top contributors to share their top growth stock ideas, and they delivered in spades.
Read on to see how Fitbit (FIT), Zillow Group (Z -1.10%) (ZG -1.10%), and Rogers (ROG 0.43%) could fill Wayfair's imposing high-growth shoes.
Image source: Getty Images.
Pessimism and opportunity
Tim Green (Fitbit): Some stocks soar because the underlying company is doing well. Fitbit is not one of those stocks. The fitness-wearables company is suffering from steep revenue declines and major losses, with demand for its products well below its ambitions. During the first quarter, revenue tumbled 41% year over year. Fitbit expects to burn through $50 million to $100 million of cash this year as it tries to right the ship.
It's no surprise, then, that Fitbit stock has been hammered. Shares are down 60% over the past year and 80% over the past three years, with new all-time lows being carved out on a routine basis. Pessimism surrounding the company is extreme. Fitbit has a lot of problems, and the smartwatch it plans to launch later this year will face an uphill battle. But with so much pessimism baked into the stock price, it won't take much to send the stock soaring.
Fitbit is now valued at roughly $1.3 billion, but its cash-rich balance sheet brings its enterprise value, which backs out the net cash, down to just $600 million. The company expects to produce revenue between $1.5 billion and $1.7 billion in 2017, putting the enterprise value-to sales ratio as low as 0.35. Fitbit isn't profitable, and it expects to produce a loss this year, but the market is betting that profitability won't return anytime soon.
The market may be right. But if Fitbit can stabilize its business during the second half and show progress toward returning to profitability, the stock has room to rocket higher.
Rogers: A high-growth wolf in conservative clothing
Anders Bylund (Rogers): For a company that's been around since 1832, Rogers sure is looking quite sprightly these days.
The maker of engineered materials and advanced polymers has found room in some very comfortable niche markets in recent years. Demand for Rogers' elastomeric cushioning materials is rising in markets such as consumer electronics, automotive, and military applications. But above all else, this company is an expert at building high-performance antenna structures -- both for large-scale base stations and the mobile devices all around us.
Rogers shareholders have seen their investments tripling in five years, driven by global demand for 4G wireless antenna systems. The upcoming 5G sea change should provide another strong surge. What Rogers does best is not just limited to the smartphone sector, but is also important to exciting high-growth markets such as automotive computing and the Internet of Things.
"Looking ahead, we are very encouraged by the acceleration and development of the 5G technologies," said Rogers CEO Bruce Hoechner in the company's first-quarter earnings call. "As the innovation leader in high-frequency circuit materials, we believe this step toward even more demanding performance requirements will provide significant opportunities for the ACS [advanced connectivity solutions] business. We continue to work closely with our customers to aggressively pursue more business in this area."
On that basis, Rogers' sales are growing at an annual clip of 27% these days, while trailing earnings jumped 81% higher in the first quarter. Not bad for a nearly 200-year-old business in a seemingly traditional manufacturing sector. This little old stock is going places.
Image source: Getty Images.
The future of real estate
Steve Symington (Zillow Group): It would be fair to argue that Zillow Group is already delivering Wayfair-esque growth. Shares of the online real estate specialist are up nearly 60% over the past year, including more than a 20% climb so far in 2017. And revenue in Zillow's latest quarter increased 32% year over year to $245.8 million (that's above Wayfair's latest 28.6% quarterly growth, albeit from a smaller base), as 36% growth from Zillow's core marketplace business was held back by a 9.2% decline in display ad revenue.
But the latter was an intentional result. Zillow previously opted to de-emphasize display advertisements on its consumer-facing sites -- which include Zillow.com, StreetEasy, Naked Apartments, hotpads, realestate.com, and Trulia -- in an effort to improve its user experience and refocus on the highest-value real estate.
The move is paying off so far. Monthly unique users climbed a healthy 6.7% year over year last quarter to 166.6 million, and touched an all-time high of 180 million in March. And the number of Premier Agents who spent over $500 per month on Zillow increased 98% over the same period.
Zillow also enjoys an immense runway for growth. For the full year of 2017, the midpoint of Zillow's latest guidance calls for revenue to increase around 25%, to roughly $1.06 billion. But that's a tiny slice of the estimated $12 billion that agents currently spend advertising their listings each year. And that doesn't account for the incremental opportunity Zillow enjoys with its budding mortgages segment (sales from which rose 23.2% last quarter to just $20.3 million) and other sales from businesses such as agent services and rentals (which nearly doubled last quarter to $34.8 million).
For investors willing to pick up shares even after Zillow Group's recent pop, I think Zillow has plenty of growing left to do.
