If you scoffed at Facebook Inc.'s (NASDAQ:FB) record-breaking initial public offering, you're probably kicking yourself now. Investors thrilled with quarterly profits that seem to defy gravity have lifted the social network's stock around 370% since its 2012 debut. But bigger needles are harder to push forward, and Facebook showing fewer ads probably means investors seeking Facebook-esque returns need to look elsewhere.
If you're not sure where to start, don't fret. We asked three Foolish investors each to highlight a stock on their radar that could put the internet darling to shame. Here's why they think Paycom Software Inc. (NYSE:PAYC), CalAmp Corp. (NASDAQ:CAMP), and Novavax, Inc. (NASDAQ:NVAX) have what it takes to produce Facebook-beating returns over the long run.
A fast-growing software company
Tim Green (Paycom Software): Shares of Paycom have trounced Facebook since the payroll-processing company went public in early 2014. Paycom is up 459% in that time, compared to Facebook's measly 195% return.
While Facebook's growth may hit a speed bump thanks to its planned changes to the news feed, Paycom continues to fire on all cylinders. In the third quarter of 2017, revenue soared 31% and adjusted net income almost doubled. The company's approach to selling its software, which revolves around building effective sales teams, allows it to both grow fast and produce exceptional profits. That's rare for a software-as-a-service company.
It's much smaller than the big fish in the payroll-processing industry, ADP. Paycom produced $407 million of revenue over the past twelve months, compared to ADP's $12.5 billion. Paycom mostly focuses on winning over smaller companies with between 50 and 2,000 employees, but that still leaves a lot of market share to be stolen from the industry leaders.
Paycom is not a cheap stock, trading for 85 times trailing-12-month earnings. But if the company can keep delivering, it could continue to put Facebook's returns to shame.
Up, up, and away
Tim Brugger (CalAmp): With a market capitalization of just $833 million, Internet of Things (IoT) connectivity provider CalAmp flies under some investors' radar. Matching the sixfold increase Facebook shareholders have enjoyed over the past five years is no easy feat, but CalAmp is positioned to do just that in an IoT market expected to reach over $560 billion by 2022.
Last quarter set more records, with total revenue climbing 12% to $93.3 million. The $13.8 million in earnings before interest, taxes, depreciation, and amortization (EBITDA) was also a record, as was the 24% sequential jump in revenue to $13.2 million generated from CalAmp's long-standing partnership with industrial giant Caterpillar (NYSE:CAT).
CalAmp's mobile resource management (MRM) telematics segment soared 24% year over year, boosting the division's total sales 15% to $77.78 million. The software-as-a-service (SaaS) unit, which is primarily focused on IoT fleet management solutions, got its new-ish deal with a "large government agency" underway last quarter. The positive impact of the recent SaaS agreement will be reflected beginning next quarter.
Excluding one-time items, which is more accurate as it doesn't include the $13.3 million CalAmp received as part of a legal settlement last quarter, per-share earnings climbed 48% to $0.31, obliterating last year's $0.21 a share. CalAmp's impressive bottom line was aided by its operating expenses rising just 2% to $33.98 million -- more than acceptable, given its total revenue growth.
Considering its relatively small market cap and the nearly limitless potential of IoT, CalAmp is poised to give Facebook a run for its money.
A bad flu season's good for one thing
Cory Renauer (Novavax, Inc.): Influenza gets all the attention, but respiratory syncytial virus (RSV) sends more infants to American emergency rooms than any other virus. That's because an effective vaccine to prevent the disease from spreading remains elusive, despite 50 years of effort.
Novavax, Inc. is a small-cap biotech that was much larger a couple years ago, after its lead vaccine candidate became the first to show a statistically significant level of protection from RSV infection among older adults in a midstage clinical trial. The bottom fell out of the stock when the successful midstage results couldn't be repeated in a much larger vaccination study with older adults.
After its stock cratered, Novavax rightfully noted that the failed study in older adults took place during one of the mildest RSV seasons on record. Flu and RSV are entirely different viruses, but they tend to spread in tandem. If seasonality was the culprit, and this year's exceptionally rough flu season coincides with a higher RSV attack rate, Novavax will probably announce success when it posts results from an ongoing maternal immunization study in a couple of years.
In a nutshell, investigators injected a bunch of expecting mothers with either a placebo or Novavax's experimental RSV vaccine. A statistically significant decrease in RSV infections among newborns exposed to the vaccine in the womb would probably lead to an approval, and eventually more than $1 billion in RSV vaccine sales. Biotech stocks generally trade at mid-single-digit multiples of their annual revenue, and at recent prices, Novavax's entire market cap was just $604 million.
Investors need to understand that another failure is possible, and would lead to heavy losses. If you're willing to accept the risk, the stock has Facebook-beating potential written all over it.