Most investors dream of blockbuster returns, and while the S&P 500 only returns an average of about 9% a year, there are at least a handful of stocks that skyrocket every year.
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As the adage goes, past performance does not guarantee future returns, but it's worth examining big winners on the market to see where the next ones will come from or if these three-bagger stocks have any more gas left in the tank. As you can see below, SodaStream International (SODA +0.00%), Square, Inc. (SQ +3.48%), and Shopify, Inc. (SHOP +5.83%) have all more than tripled since last summer.
Let's take a closer took at what's propelled each of these stocks so high over the last 15 months.
From flat to fizzy
A couple of years ago, SodaStream was regarded as all but a broken company. The stock had fallen sharply through 2014 and 2015 after it misread demand in the U.S during the 2013 holiday and was forced to discount excess inventory, while it cleared out those channels. Demand had peaked, and revenue growth turned negative.
As a result, SodaStream rebranded as a sparkling water company, and moved its production to a new, more efficient facility in Israel. Those moves resulted in a return to revenue growth and the tripling of its earnings per share.
With the help of its razor-and-blades model, SodaStream has soared past earnings estimates as its model gives it valuable operating leverage -- modest growth in sales leads to outsize growth in profits. Following the recent comeback, management expects operating income growth to moderate, but the company seems to have found a winning formula with its new position as a sparkling brand.
Smartphone power
Square stock dropped in the opening months after its 2015 IPO, but since last summer, the stock has surged as results have crushed estimates over the past year, with Square turning profitable sooner than expected.
Gross payment volume grew 32% in its most recent quarter to $16.4 billion, and adjusted revenue increased 41% to $240 million.
Investors have high hopes for so-called fintech companies like Square, as there should be a long tail of growth ahead as payments become more digitized and smartphones and tablets play a greater role in accepting them.
The company is also beginning to enter markets outside the U.S. It expanded into the U.K. in March, and international territory could be a huge opportunity going forward as credit cards are less common outside the U.S. The proliferation of smartphones makes Square a natural solution for such evolving markets. Earnings per share is expected to nearly double next year, and investor enthusiasm could push the stock up further.
Riding the e-commerce wave
It's no secret that Amazon.com has been one of the best-performing stocks of the last 20 years, evidence of the massive opportunity in e-commerce. For investors looking to capture that lightning in a bottle once again, Shopify appears to present the best chance.
The Canadian company offers e-commerce management software for small and medium-sized businesses, and its growth is evidence of the popularity of its product and its future growth potential.
Shopify's revenue has nearly doubled in every quarter since it went public and grew by 75% in its most recent quarter. Shopify investors are clearly excited about the company's long-term opportunities as e-commerce is becoming increasingly important for small retailers and other businesses. Its products are also strong enough that even Amazon pulled the plug on its own competitor, Amazon Webstore.
The company is the leader in a fast-growing industry. That's often a good recipe for multibagging growth.
If I were to bet on one of the three from here, I would go with Shopify due to its strong revenue growth and the potential in e-commerce, but SodaStream and Square should continue to outperform the market as analysts are underestimating both stocks.
