With more than 27,000 locations in 75 countries (and counting), coffee behemoth Starbucks has built an enviable empire that even its most ambitious competitors must admire. Perhaps it should come as no surprise, then, that Starbucks stock has brewed jaw-dropping gains for investors who saw its potential early on.
To be sure, those who bought shares at Starbucks' IPO 25 years ago and reinvested their dividends have enjoyed a more than 18,000% return. And even if you'd bought shares of Starbucks a mere 10 years ago, your investment still would have more than quadrupled, crushing the S&P 500's solid 107% return over the same period.
That raises the question: Are there any stocks on the market today that could soar even more than Starbucks? We asked three top Motley Fool investors to weigh in with their thoughts to that end. Read on to see why they think CalAmp (NASDAQ: CAMP), Bloomin' Brands (NASDAQ: BLMN), and Freshpet (NASDAQ: FRPT) fit the bill.
A small-cap tech leader gaining traction
Steve Symington (CalAmp): Shares of CalAmp have skyrocketed nearly 80% over the past year, including a more than 25% pop in the month of September alone following an impressive quarterly report from machine-to-machine communications company. But with CalAmp's market capitalization at just $800 million as of this writing, I think it has plenty of room to grow as new customers begin to flock to its solutions and as it tackles promising new markets.
Last quarter, for example, CalAmp not only expanded its successful years-long relationship with Caterpillar, but also secured its second large (but still unnamed) customer in the global heavy equipment market. CalAmp also won its largest-ever software-as-a-service (SaaS) contract with an unnamed blue-chip freight transport company tracking its mobile assets in North America. During the subsequent earnings conference call, CalAmp CEO Michael Burdiek suggested the latter contract blossomed from a nearly two-year conversation with that customer and started as a more limited hardware-only agreement for telematics tracking devices.
Looking forward, as these globally focused companies are beginning to adopt CalAmp's products at a greater rate, I think more of their peers will take note and follow suit. For investors willing to buy CalAmp stock before that traction becomes more evident, I think it could easily soar more than Starbucks over the long term.
Multiple world-class brands
Sean O'Reilly (Bloomin' Brands): What Starbucks has managed to accomplish since its founding has been nothing short of amazing. To beat its returns will require equally valuable consumer brands. It is for this reason that Bloomin' Brands, a holding company for casual dining chains like Bonefish Grill, Carrabba's Italian Grill, Fleming's Prime Steakhouse, and Outback Steakhouse is my pick for a stock that could soar more than Starbucks. It is one of the world's largest casual dining companies. With approximately 1,500 restaurants throughout 48 states, U.S. territories, and 20 countries. It's difficult not to find a restaurant owned by the company.
Bloomin' is hitting its stride when it comes to the bottom line. Net income for the quarter ended June 25, 2017, came in at $35.6 million ($0.36 per share). This is a marked increase over the same period last year where the company lost $9.2 million. Domestic growth has been less than inspiring as of late (for example, comparable restaurant sales were up just 0.3% at its Outback Steakhouse chain in Q2).
On the bright side, Bloomin' Brands' international expansion continues to deliver. Outback Steakhouse seems to have struck a chord in Brazil, providing a 12.6% year-over-year comparable sales jump in Q2. Management also seems confident in the future. The company recently approved a $250 million share buyback program this spring, and since then it has repurchased $155 million in Bloomin' shares. This makes sense. BLMN stock currently trades at 13 times forward earnings estimates and yields 1.77%. With a broad portfolio of casual dining restaurants, substantial international expansion opportunities, and a compelling stock valuation, Bloomin' Brands is a strong contender to soar more than Starbucks in the years ahead.
This small cap could claw its way to double-digit annual growth
Sean Williams (Freshpet): Coffee giant Starbucks has made its living by catering to clientele who want more than just coffee – they want an experience. It's built its brand around this thesis, which is why its stock is up more than 470% in the past decade. While finding a company that can outperform Starbucks isn't easy, I believe up-and-coming small cap Freshpet has a pretty good shot.
Freshpet, as the name implies, is a manufacturer of natural and organic refrigerated foods for pets. Its target audience is that customer who shops in the organic and natural food section of a supermarket, except in this instance it's for their pet(s). Since the vast majority of consumers consider their domestic pet to be family, it's only right to assume that they'd go to great lengths to ensure its health and well-being. This includes making sure their pet has access to high-quality foods.
Now that you better understand the thesis, let's have a look at the growth figures behind the company and why they're so exciting. Sales during the second quarter rose 21.1% to $40 million, while the number of Freshpet fridges in retailers grew by 9.9% year-over-year to 17,357. While this might sound great, it's really just touching the tip of the iceberg in terms of penetration and awareness.
As of 2016, Freshpet had penetration and awareness rates of 1.4% and 35%, respectively, which was well below established organic and natural brands like Blue Buffalo and Purina ONE. However, the company hadn't kicked off a national advertising campaign before, which it did earlier this year. This push in online advertising is expected to boost growth and eventually help lower costs as a percentage of sales.
At the same time, we're seeing returning customer rates move markedly higher. In 2014, 60% of consumers who purchased Freshpet products came back again, while in 2016 repeat customers increased to 71%. That's a testament to the quality of the products being offered, as well as improved visibility with retailers.
While Freshpet's quarterly losses might look unsightly now, I believe it could become profitable on a recurring basis by the second half of 2018. This stock offers a lot of intrigue with high hopes of a 20% sustainable growth rate by 2020, which is why it may be able to leave Starbucks in its dust.
The bottom line
Of course, there are no guarantees that these three stocks will absolutely beat the returns of Starbucks, which has already proven to be one of the best investments of our lifetime for early shareholders. But given their distinct businesses advantages and with each still early in its long runway for growth, they're a great place to start for patient, long-term investors.
Sean O'Reilly has no position in any of the stocks mentioned. Sean Williams has no position in any of the stocks mentioned. Steve Symington has no position in any of the stocks mentioned. The Motley Fool recommends CalAmp. The Motley Fool has a disclosure policy.