If you asked investors for either their biggest winner or a stock they wished they'd purchased in recent years, there's a good chance Netflix (NASDAQ:NFLX) would enter the mix. Shares of the video-streaming leader have climbed an incredible 1,600% over the past five years alone, including a nearly 60% rise so far in 2017.
That raises the question: Are there any stocks that could rival or even beat Netflix's returns going forward?
So we asked three top Motley Fool investors each to pick a stock they believe could do just that. Read on to see why they chose iRobot (NASDAQ:IRBT), Alarm.com Holdings (NASDAQ:ALRM), and Aphria (NASDAQOTH:APHQF).
Betting on the future of robotics
Steve Symington (iRobot): Best known for its popular Roomba robotic vacuums and Braava floor-mopping robots, iRobot has already found its way into millions of consumers' homes around the globe. But the home robotics industry is still in its early stages, and iRobot chairman and CEO Colin Angle asserted last quarter that adoption for robotic vacuums, in particular, is accelerating as we speak.
To be sure, iRobot's revenue last quarter climbed nearly 22% year over year, including consumer revenue growth of nearly 34% in the U.S. and 15% internationally. And iRobot recently completed the acquisitions of its largest distributors in both Japan and Europe, to give it more control over its story and growth strategies in the two promising regions.
Over the longer term, iRobot envisions building an ecosystem of connected home robots that, in Angle's words, "work collaboratively and further enable the smart home."
And even though iRobot's latest results handily beat expectations, shares plunged the following day after an analyst reduced his price target on the stock, admitting the quarter was "strong" but citing concerns over rising competition in the core robotic-vacuum space. It's worth noting, though, that iRobot has long considered competition a good thing, serving as validation of its efforts to increase the ubiquity of home robotics.
We're still talking about a company with a market capitalization that's under $2 billion as of this writing. For investors willing to take advantage of the recent pullback and hold iRobot's stock as its long-term story plays out, I think it could easily trounce Netflix's returns in the coming years.
No place like home
Daniel Miller (Alarm.com): One of the most intriguing trends for investors over the coming decades is likely to be the rise of smart homes. Connected devices are already making waves in home safety, energy efficiency, connectivity, home intelligence, and entertainment, among other uses. And according to management consulting firm McKinsey & Company, the number of smart homes has risen to 29 million this year, compared to 17 million as recently as 2015 -- strong annual growth that is likely to continue. One company for investors to consider, and one that could put many companies' returns to shame, is Alarm.com.
The company was founded in 2000 and went public in June 2015. It has a go-to-market strategy with more than 7,000 service-provider partners, and has more than five million subscribers. The good news is that Americans believe personal and family security to be top benefits of owning a smart-home system, which is exactly what Alarm.com focuses on as a leading cloud-based platform.
Alarm.com's financial performance has been solid as well, with revenue rising 32.6% and adjusted earnings per share jumping 42.1% over the prior year's third quarter. Management even raised revenue guidance, as subscribers continue to join and others add more devices to their existing systems. While putting Netflix's returns to shame is far easier said than done, Alarm.com is poised to take advantage of the number of rising smart homes in the U.S. market, and focusing on security could prove to be a lucrative business for its investors.
This growth stock will have you "seeing green"
Sean Williams (Aphria): Netflix was revolutionary in the way it transformed the dissemination of content, so trying to match that growth and performance is going to be difficult. However, one company that could have a shot is Canadian-based medical cannabis grower Aphria.
Like Netflix, Aphria isn't cheap by any means. Marijuana stock valuations have been pushed into nosebleed territory, and Aphria has gone along for the ride. However, unlike many of its pot-growing peers based in Canada, Aphria has been profitable nearly every single quarter in the trailing two-year period, and has generated positive EBITDA (earnings before interest, taxes, depreciation, and amortization) for the last eight quarters. Its management team has placed an emphasis on remaining profitable, despite spending copious amounts of capital on expanding its growing capacity.
There are catalysts on both sides of the aisle for Aphria. First, medical marijuana is legal in Canada, and has been so since 2001. According to statements from Health Canada in May 2017, eligible patient enrollment has been growing by 10% a month, giving medical pot distributors ample opportunities to grow. Aphria has been able to turn a profit solely from medical cannabis growth, and some well-timed strategic investments in other marijuana businesses.
Recreational weed is on the other side of the aisle. Prime Minister Justin Trudeau introduced a bill this past April that would legalize weed for use by all adults in Canada by July 1, 2018, potentially rocketing demand for dried cannabis, and generating billions in extra added revenue for growers. Aphria is in the midst of a four-part expansion project that, when complete, will yield around 100,000 kilograms of dried cannabis annually across its 1 million square feet of growing capacity. This phase 4 project, which is costing in excess of $100 million to construct, is expected to be finished in Jan. 2019.
Combine these catalysts, along with the fact that Aphria is one of a select few growers given the green light to export dried cannabis to countries that have legalized medical pot, and you have what could be a recipe for triple-digit sales and profit growth for years to come. If the cards fall Aphria's way, it could handily outperform Netflix.
The bottom line
Of course, there are no guarantees that iRobot, Alarm.com, or Aphria will manage to eclipse Netflix's incredible gains. But given their central positions in potentially lucrative industries with mouthwatering long-term growth potential, we like their chances. And if you have the patience to hang on and let compounding work its magic, they could be just what your portfolio needs to crush the returns of both Netflix and the broader market.
Daniel Miller has no position in any of the stocks mentioned. Sean Williams has no position in any of the stocks mentioned. Steve Symington owns shares of iRobot. The Motley Fool owns shares of and recommends iRobot and Netflix. The Motley Fool recommends Alarm.com Holdings. The Motley Fool has a disclosure policy.