When Facebook (NASDAQ:FB) went public in mid-2012 at $38 per share -- or a valuation of over $104 billion -- it marked the biggest technology IPO of all time. But its size certainly didn't stop the social-media juggernaut from absolutely crushing the broader market's returns. Facebook's shares are trading at over $175 today, and early shareholders have enjoyed a massive 358% gain as of this writing compared to a respectable 130% for the S&P 500 over the same period.
While Facebook arguably isn't done rising yet, the question must be raised: Are there any other stocks on the market today that could offer even greater returns?
A compelling (computer) vision for the future
Steve Symington (Ambarella): Ambarella's latest results might not look great on the surface right now. Revenue last quarter declined more than 11% year over year, while earnings fell almost 60% -- both primarily driven by lower sales to GoPro as the action-camera specialist opted to create its own video-processing chips in newer devices. But Ambarella's profits were actually better than expected. The combination of this along with the company's progress in the promising computer-vision market resulted in a pop of more than 14% in the company's shares on Friday in response.
To that end, Ambarella began sampling its new CV1 computer-vision chip to key customers last quarter, paving the way for it to capitalize on the impending explosion in demand for advanced video-processing in products like IP security cameras and advanced driver-assistance systems (ADAS) in the automotive market.
Looking further ahead, Ambarella also confirmed it's on track to deliver a new generation of systems-on-chip (SoC) solutions in the first half of next year, based on the same architecture as the CV1. These new SoCs will target the drone and virtual-reality markets in addition to next-gen IP security and OEM automotive applications.
As it stands, Ambarella shares are trading at around half their all-time high set in mid-2015. And we're still only talking about a company with a modest $2 billion market capitalization as of this writing. For investors willing to buy now and watch the company's longer-term growth story play out as demand for computer-vision technology grows, the stock could easily put Facebook's returns to shame.
Sean O'Reilly (iRobot): Finding a stock that can beat Facebook's returns won't be easy, but I think iRobot has what it takes. The market leader in the burgeoning consumer-robot industry, iRobot has proven itself to be not only a fast-growing stock, but a profitable one, as well.
It's rare to find high-growth stocks capable of consistent profitability, but iRobot has proven itself to fit the mold. Revenues for its third quarter ended September 30, 2017 came in at $205.4 million, up 21.8% from the same period last year. Also in the company's earnings report, management drastically upped full-year earnings-per-share (EPS) guidance to $1.65-$2.00, a significant jump from its original $1.35-$1.70. This performance is, happily, more of the same for iRobot:
iRobot continues to grow due to the success of products like its Roomba robot vacuum. Despite the popularity of the Roomba, market penetration of consumer robots remains low -- less than 10%. This gives the company a lot of room to grow -- and generate big returns for shareholders.
With a market capitalization of around $2 billion, iRobot also happens to be much smaller than Facebook and its $515 billion valuation -- making high returns far easier. With a leadership position in the fast-growing consumer-robot market and a history of profitable growth, iRobot is a strong contender to trounce Facebook's returns in the future.
Facebook's red-headed stepchild
Rich Smith (Twitter): Everybody loves Facebook, sure -- and what's not to love? Facebook just turned in another blockbuster quarter featuring 45% sales growth and 70% earnings growth. In contrast, Twitter reported a 5% shrinkage in sales, and no profits whatsoever.
So why do I call Twitter a growth stock when it just finished failing to grow, and think it could put Facebook's returns to shame? Here's a hint: After Facebook's fabulous results came out, its stock dropped 2%. After Twitter's lousy earnings were released, though, its stock surged 18%.
That's called the power of low expectations. People expect Facebook to do great, so when it does do great, investors may be inclined to shrug it off. In contrast, people expect so little out of Twitter right now that anything remotely resembling good news gets greeted with applause. Thanks to a much smaller market cap, Twitter may be able to post the kinds of returns that Facebook investors can only dream about. Call me an incurable optimist, but I kind of think that makes Twitter stock worth checking out.
And what do we see when we do check out Twitter? No GAAP profits, sadly, but $664 million in annual free cash flow, paired with a $15 billion market cap that values Twitter at only 22.5 times free cash flow. Facebook, meanwhile, costs 33 times free cash flow. If investors ever get around to equalizing those valuations, Twitter's returns will put Facebook's to shame.
The bottom line
It might seem like a tall order for any investment to beat Facebook's returns so far, and there are no guarantees that Ambarella, iRobot, and Twitter are up for the task. But as each promising business operates from a position of strength, industry leadership, and a significantly smaller base, respectively, we like their chances of doing just that.
Rich Smith has no position in any of the stocks mentioned. Sean O'Reilly owns shares of Facebook and iRobot. Steve Symington owns shares of iRobot. The Motley Fool owns shares of and recommends Ambarella, Facebook, iRobot, and Twitter. The Motley Fool has a disclosure policy.