Over the past 20 years, online auction house eBay (NASDAQ:EBAY) has generated returns of more than 4,500% for investors, even including a period where it lost some 80% of its value.
Long-term results like that are the dream of every stock investor, but of course, they're hard to come by. In the market, there are no guarantees, but you can start by picking companies where the potential for major, multibagger gains exists. So we asked three Motley Fool investors to suggest companies they have reason to believe could eventually match or outpace the track record of eBay. According to them, Etsy (NASDAQ:ETSY), Albemarle (NYSE:ALB), and Shopify (NYSE:SHOP) could produce an embarrassment of riches for shareholders.
The big business of small business
Chuck Saletta (Etsy): Just like eBay brought together buyers and sellers of merchandise in an online marketplace, Etsy is connecting crafters with folks who want to buy their handiwork. What makes Etsy an interesting story from an investing perspective is the fact that it's expected to become profitable on an annualized basis in 2018. That could give its shares a chance at breaking above the range where they have traded since the company's 2015 IPO.
Etsy has already delivered some quarterly profits -- and has been operating-cash-flow positive for a few years. Indeed, it has delivered nearly $30 million in free cash flow over the past four reported quarters, lending credence to analysts' forecasts of a transition to sustained profitability in the not too distant future. Unlike many online retailers for which profit seems more like an afterthought than an objective, at Etsy, helping the entrepreneurs who use its site thrive and profit is central to its own profit story.
Just as the network effect boosted eBay once it became recognized as the go-to site for trading stuff online, it is fueling Etsy's growth as the go-to site for buying and selling creative merchandise. Moreover, profit attracts entrepreneurs, so its emerging profitability could help promote the company's continued growth by making it clearer to those who do business on the site that it has staying power. This virtuous cycle gives Etsy a very real chance of producing strong stock market returns as the underlying business grows.
The boom in batteries
Tyler Crowe (Albemarle): It's hard to look at the energy business and not expect some incredible changes over the next several years -- they've already started. Today, the cost per megawatt-hour of solar and wind power is comparable to fossil fuel generation, and it continues to drop. Hybrid and electric vehicle sales continue to build momentum as prices decline and consumers get over their range anxiety. This is creating a market where demand for batteries -- more specifically, lithium ion batteries -- is going to grow immensely over the next few years.
A critical component of those batteries is, of course, lithium, which makes lithium miner and processor Albemarle a compelling stock for the future. According to the company's internal estimates, total lithium demand will double over the next five years thanks mostly to increases in automotive battery demand. It also helps that lithium isn't a common product, and economically recoverable resources are geographically limited to a few countries. That gives Albemarle, the world's largest lithium producer, a competitive advantage it could potentially leverage for higher prices.
As is the case for just about any basic material in high demand, there is a good chance we will see a rapid expansion of supply that could outpace demand and create a glut. However, due to the geographic constraints of lithium, the chances of that happening are slightly less than for other common materials like iron or copper. If demand even comes close to what is projected, then it's not hard to imagine Albamarle's stock replicating the success of eBay over time.
Shop till you drop
Rich Duprey (Shopify): According to the latest data from the Commerce Department, of the $1.26 billion in retail sales registered between April and June (adjusted for items not normally bought online, like cars, gas, and restaurants), internet retailers enjoyed a 16% increase in sales from the year-ago period, while all of retail only rose 0.5%. No wonder Shopify has nearly tripled in value over the past year.
Shopify is an e-commerce platform provider that enables small and medium-sized businesses (SMB) to establish web-based and mobile storefronts, by giving them a simple, seamless, and secure platform from which to sell their goods and services.
That's increasingly key in the rough-and-tumble world of modern retail sales, where consumers expect to be able to transact anywhere, anytime, on any device. While the internet gives small businesses the chance to look just as established as big players, Shopify gives them the actual tools they require to capitalize on their potentially enormous reach.
With some analysts forecasting slower-than-usual online sales growth of only 10% this holiday season -- and with Amazon.com (NASDAQ:AMZN) expected to capture 34% of those holiday sales -- SMBs will need every advantage to grow this year. Shopify should help them do just that.
Given that it has been a publicly traded company for less than three years, Shopify does carry an eye-bulging valuation, but it is still coming into its own. Analysts expect it will grow earnings at a compounded annual rate of 25% for the next five years, suggesting its profits will triple during that period. That kind of growth would make even eBay proud.
Chuck Saletta has no position in any of the stocks mentioned. Rich Duprey has no position in any of the stocks mentioned. Tyler Crowe has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon, eBay, and Shopify. The Motley Fool recommends Etsy. The Motley Fool has a disclosure policy.