To be clear, there's no way to know for sure which stocks will be the next big winners. Having said that, there are some stocks that have the makings of future blue-chip companies. Here's why I think that Square (SQ 0.13%), BofI Holding (BOFI 0.04%), and Etsy (ETSY 0.08%) could generate tremendous returns for investors who get in now.
|
Company |
Symbol |
Recent Stock Price |
Market Cap |
|---|---|---|---|
|
Square |
SQ |
$24.82 |
$9.5 billion |
|
BofI Holding |
BOFI |
$27.18 |
$1.7 billion |
|
Etsy |
ETSY |
$16.22 |
$1.9 billion |
Data Source: TD Ameritrade. Prices and market cap data is as of 8/14/2017.
Two-thirds of businesses don't accept card payments... yet
Payment technology company Square's stock price has more than doubled over the past year, but there could be much more room to the upside.
In the past year alone, Square's gross payment volume has grown by 32%, and the company has done a great job of getting its product into larger businesses, which are still a relatively small part of the company's revenue stream. In addition to the core payments business, Square has launched a number of other revenue drivers, some of which are starting to get serious traction.
For example, Square Capital, which makes loans to businesses backed by their card payment revenue grew its loan volume by 68% year-over-year, but it is utilized by just a small fraction of Square's customers. The Square Cash peer-to-peer payment platform continues to grow, and the Caviar food-delivery platform is still in the early stages of its growth potential.
In its core payments business, there could still be tremendous untapped potential. Square is only in five countries so far, and two-thirds of businesses around the world don't accept card payments yet. It is estimated that the total international card payment volume will reach $45 trillion annually by 2025 (Square processed $56.9 billion over the past year), so it's fair to say that Square's market opportunity is massive.
Image source: Getty Images.
How often do you go to the bank anymore?
From a business perspective, it's much cheaper for a customer to complete a banking transaction online than it is to complete a teller-assisted transaction.
One look at online-only bank BofI Holdings' numbers tells you all you need to know.
|
Metric |
BofI |
Peer Group |
Percentile Rank |
|---|---|---|---|
|
Return on average assets (ROAA) |
2.09% |
0.86% |
91st |
|
Return on equity (ROE) |
23.66% |
7.94% |
96th |
|
Efficiency ratio |
27.09% |
66.39% |
4th (lower is better) |
Data source: BofI investor presentation. Peer group is defined as savings banks with more than $1 billion in assets. Data as of 3/31/17.
Not only is BofI (which stands for "Bank of Internet") highly profitable, but it is growing rapidly, with much more upside potential ahead. For example, BofI's assets grew by 11.9% over the past year, but are just $8.5 billion. This puts BofI in the same league as First Financial Bank or Union Bank & Trust. If you just said "who?" when you read those names, that's my point. BofI is still a small bank.
In addition to strong deposit growth, BofI has recently expanded into new areas, such as auto lending and personal loans. Plus, BofI just expanded its partnership with H&R Block to provide all refund anticipation loans for the tax preparer for the 2018 tax season.
Millennial shoppers want unique products
After some uncertainty in its relatively short post-IPO life, Etsy seems to be making significant progress in terms of profitability, and the company could still have lots of room to grow.
Etsy's revenue model is fee-based, and the company collects several types of fees, such as a listing fee, transaction fee, and payment-processing fee. This model produced $101.7 million in revenue during the most recent quarter, up more than 19% year-over-year, and active sellers grew by nearly 11%. At the same time, the company's workforce has been reduced by 23% since the end of 2016.
The combination of revenue growth and lower expenses produced a profit of $0.10 per share for the quarter, which may sound low, but it is certainly better than a loss of $0.06 a year ago.
As far as future growth opportunities go, Etsy estimates that total online spending in its top categories is roughly $155 billion between its six markets, of which Etsy currently has a market share of just 2%. So, it's fair to say that there is plenty of room to grow going forward. In fact, my colleague Tim Green recently said that Etsy looks similar to an early eBay.
