It's rather easy to see why Alibaba Group's (BABA 2.04%) has doubled so far in 2017. The company owns 11% of China's massive $5 trillion retail market, and that is only expected to grow as e-commerce becomes an even larger portion of overall sales. With revenue growing at a breakneck clip, this year's gains could be a harbinger of future returns.
Finding other companies with that kind of potential isn't easy, but our three investing contributors think that Axon Enterprises (AXGT 2.47%), American Tower (AMT 1.10%), and JD.com (JD 2.69%) could do better. Here's why.
A growth stock for law enforcement
Travis Hoium (Axon Enterprise): Shares of Alibaba have nearly doubled in the past year and that's a huge gain for any investor. I think Axon Enterprise is the kind of company that could provide outsized returns for investors.
Axon's two main businesses are selling tasers and body cameras to law enforcement. In the first six months of the year, Axon sold $110.7 million of tasers and recorded $37.8 million in operating income.
Tasers are the rock-solid cash cow for Axon, but body cameras are the future growth driver. In the first six months of 2017, sales of body cameras and related services were up 110% to $48.2 million. It's a great long-term business too because customers sign contracts up to 5 years for services like the Evidence.com cloud platform and those services generate margins of over 70%. Operating loss for the segment was $31.6 million, but that's mainly because Axon is plowing about $100 million annually into sales and R&D efforts.
Adoption of body cameras and tasers are rising around the globe and Axon Enterprise is the industry leader in both categories. That puts the company well positioned for long-term growth and could lead to returns that even exceed Alibaba's.
Too many international opportunities to ignore
Tyler Crowe (American Tower): Alibaba and many other online retailers are further proof that data -- notably wireless data -- is a precious commodity that is likely to grow even more over time. American Tower is very much like a toll booth for that data as it owns the towers and other structures where wireless companies install their telecommunications equipment. In the U.S., American Tower is a steady business with decent rates of returns thanks to several telecom companies renting space on a single tower. What really looks compelling, though, is American Tower's opportunities outside the U.S.
Over the past several years, the company has invested heavily in communications towers in what it calls evolving and developing markets. These are markets where wireless penetration is high -- lots of people have cellphones -- but broadband penetration is low -- not a lot of those cellphones are using data. Some of the most notable markets that fit this description are India, Nigeria, South Africa, and Brazil. For American Tower, the rate of return on a tower is incredible. The company estimates that rates of return for single tenant towers are similar to multi-tenant towers in the U.S. Furthermore, the rapid growth of data consumption in these countries has helped American Tower grow revenue by 16% annually over the past decade.
It's hard to envision a scenario where data demand doesn't continue its meteoric rise over the next several years, which gives American Tower ample opportunities to invest in new tower properties and add multiple tenants to existing towers. With its current slate of countries, American Tower has a portfolio that could outperform Alibaba over time.
A "remarkable" growth opportunity
Rich Duprey (JD.com): Alibaba may be eight times larger than JD.com and is seen as the dominant Chinese e-commerce player (and rightly so), but its rival is rapidly and broadly expanding into new markets that will soon have pundits comparing it to Amazon.com (AMZN 3.15%) just as they do Alibaba now.
In fact, JD.com is arguably already more like Amazon than its larger industry peer. Where Alibaba serves as a middleman between buyer and seller in a marketplace, JD.com operates a network of warehouses. That's becoming more the norm these days as many global retailers seek to straddle the chasm between the online and physical world.
Wal-Mart (WMT 0.86%) was also an early adopter of the model, quickly realizing that its sprawling national (and global) footprint of supercenters could be used as distribution hubs for online purchases, as well as pickup points for the merchandise.
Today JD.com and Wal-Mart are partners after the latter took a 12% stake in the e-commerce upstart. Together they've created their own national online shopping event similar to Amazon's Prime Day and Alibaba's Singles Day. The inaugural was on August 8, and while specific figures were not released, JD.com said results were "remarkable" with volumes rising 10 times the average and order size doubling that day.
JD.com expects third-quarter sales to grow between 36% and 40%, a robust result for a seasonally slow quarter. With it further diversifying into data, cloud, and artificial intelligence services like you see from Amazon Web Services, it's easy to imagine JD.com's growth could put Alibaba's growth to shame.