Only a select few stocks have achieved truly life-changing returns for early investors. With shares up more than 65,000% over the past 20 years -- literally turning thousands of dollars into hundreds of thousands over that time -- Amazon.com (NASDAQ:AMZN) is one of them.
That raises the question: Are there any stocks now that look like Amazon in the beginning?
Taking market share, and driving Wall Street crazy in the process
Steve Symington (Ubiquiti Networks): Wireless networking is admittedly a crowded space. But in truly Amazon-esque fashion, Ubiquiti Networks isn't afraid to sacrifice near-term profits in favor of winning over customers, taking market share, and consistently disrupting the industry segments it enters.
In February, for example, Ubiquiti fell short of Wall Street's quarterly profit expectations after production issues required a last-minute redesign for some of its newly launched AmpliFi consumer products. But Ubiquiti chose not to waste the momentum it had built with its public relations and marketing strategy for the launch. So it purposefully -- and wisely -- opted to incur additional costs for air shipments required to fill its channels with AmpliFi product stock in time for the crucial holiday season.
Similarly last quarter, Ubiquiti's profits came in below consensus expectations as the company insisted on bolstering its research and development spending. This in turn will enable the company to maintain a product pipeline to continue delighting its customers, especially as it gears up for new points of distribution with major retail outlets including Best Buy, GameStop, and Wal-Mart's Sam's Club this quarter.
Much to Wall Street's chagrin, that might mean Ubiquiti doesn't live up to analysts' earnings expectations in the near term. But in the same way Amazon has rewarded investors while eschewing the best margins in favor of building the size of its business -- and keeping in mind that Ubiquiti is already solidly profitable in its own right -- I think Ubiquiti Networks is poised to deliver market-beating growth for years to come.
People will buy furniture online
Demitri Kalogeropoulos (Wayfair): There are many ways in which Wayfair, the online home-furnishings specialist, contrasts sharply with Amazon. For one, its operating cash flow is tiny, and has in fact worsened over the past year. Wayfair also has a skilled executive team, but founder and CEO Niraj Shah would have a tough time living up to Jeff Bezos' visionary business legacy.
But it's hard to look at the company's shopper-engagement metrics and not be reminded of Amazon's early days. Wayfair's active user base last quarter passed 8.9 million customers, up 49% from the prior year. These users are becoming more loyal, too, with repeat orders rising to 60% from 55% a year ago.
Like Amazon did with early innovations around the book-shopping experience, Wayfair is stringing together its own engineering and operating wins. The U.S. home-goods segment is worth over $250 billion, most of which is tied to physical shopping because its products are bulky and difficult to ship. The browsing process for furnishings is far different from most online retailing, too, which is based on branded search. In contrast, people shop more visually for home products, with less regard for brands.
Wayfair is plowing resources into meeting that unique browsing need, while at the same time bulking up its physical infrastructure in a bid to dramatically reduce shipping times. Executives believe that success in these expensive -- and risky -- initiatives should help the company achieve near-double-digit adjusted profit margins over time.
A shining star emerging in the solar industry
Sean Williams (First Solar): While it's extremely difficult to locate the next Amazon in its early stages, I believe it's fair to suggest that solar-panel producer First Solar offers similarities to an early Amazon.
For instance, Amazon spent the early stages of its existence expanding without regard for profitability, and it relied on its operating cash flow to drive expansion. Many of its rivals folded under the pressure of a weak economy during the dot-com bubble, and had insufficient cash on their balance sheets to withstand a protracted downtrend in the economy.
The solar industry has undertaken a similar path, in that producers were coming out of the woodwork and taking on debt in droves to expand their production capacity in recent years. However, as the supply of panels grew and prices fell, those companies that had leveraged their balance sheet to the hilt wound up going bankrupt or having their hands tied. First Solar, on the other hand, predicts ending the current fiscal year with $1.5 billion to $1.7 billion in net cash. This exceptionally high cash balance gives it the flexibility to acquire other businesses should it see fit, as well as withstand pricing downturns in the economy.
Perhaps more importantly, Amazon's success was a function of its innovation. Amazon found ways (e.g., Prime) to keep its customer base loyal to the brand. First Solar's innovation is coming in the form of next-generation solar upgrades, which are being funded with its operating cash flow and large cash balance. Its Series 6 products, which will ship in 2018, should help lower its production costs by up to 40%, while boosting panel efficiency and margins. By 2019, the company should have enough capacity to crank out 3 GW in Series 6 products annually.
Despite what could be a solar-unfriendly Trump administration, First Solar has the capital and innovative capacity to stand out among its peers, and truly grow into a giant as renewable-energy project demand expands within the U.S. and around the globe.
Demitrios Kalogeropoulos has no position in any stocks mentioned. Sean Williams has no position in any stocks mentioned. Steve Symington has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon, Ubiquiti Networks, and Wayfair. The Motley Fool owns shares of GME and has the following options: short July 2017 $24 calls on GME. The Motley Fool has a disclosure policy.