Since going public, e-commerce platform developer Shopify Inc. (US) (NYSE:SHOP) has emerged as the absolute leader in the industry, with even some of its biggest potential competitors instead scrapping their own in-house platforms and partnering with Shopify. This trend has driven incredibly strong growth in customer uptake, sales, and cash flows, and that has in turn delivered absolutely remarkable gains for the stock. Since going public, Shopify has delivered an incredible 368% in gains. And from the bottom -- its stock was pretty up and down for months after going public -- Shopify shares are up an otherworldly 504%. That's in less than three years.
Of course, nobody is good enough to predict any stock delivering those kinds of returns -- Shopify has been a rare situation of a great company with a compelling, disruptive product at the right time.
But while Shopify seems likely to remain an excellent investment, there are other stocks out there that have wonderful prospects, and very well could do even better. We asked three investors for growth stocks they like to outpace Shopify's returns, and they came back with early-stage biotech Adverum Biotechnologies Inc. (NASDAQ:ADVM), personal protection and body camera specialist Axon Enterprise Inc. (NASDAQ:AAXN), and a small healthcare REIT with big growth prospects, Caretrust REIT Inc. (NASDAQ:CTRE).
Keep reading to learn why these growth stocks are poised to deliver Shopify-beating returns.
A hidden gem in gene therapy
George Budwell (Adverum Biotechnologies): Shopify has been kind to its early shareholders, but the gene therapy company Adverum Biotechnologies could turn out to be an even better growth vehicle for investors willing to take a chance on an early clinical-stage biotech.
The reason? Adverum's first three targeted indications -- alpha-1 antitrypsin deficiency, wet age-related macular degeneration, and hereditary angioedema -- represent a $3 billion-plus commercial opportunity. That's approximately 10 times the company's current market capitalization. The good news for investors, though, is that the company is just getting started in clinical trials. As these trials mature, the biotech's valuation should start to more closely reflect this enormous commercial opportunity presented by its next-generation clinical assets.
Turning to the specifics, Adverum recently launched its first human clinical trial for alpha-1 antitrypsin deficiency with the gene therapy ADVM-043. The company plans to give investors a sneak peak at these data later on this year. Meanwhile, Adverum is also gearing up to launch trials for wet age-related macular degeneration and hereditary angioedema, perhaps before the end of 2018. In other words, the company should have three product candidates with blockbuster sales potential in trials soon. That's a rare occurrence in biotech, quite frankly.
All that being said, gene therapies like Adverum's have run into serious troubles in the clinic in the past. So this speculative biotech stock does sport a hefty dose of risk that growth-hungry investors shouldn't take lightly.
The tiny camera company that isn't getting enough credit
Brian Stoffel (Axon Enterprises): I'll be the first to admit that my choice has nowhere near the total addressable market as Shopify -- which could basically cater to anyone doing business in the world since e-commerce is becoming so important. That being said, at only one-ninth the size of Shopify -- by market capitalization -- I think Axon Enterprises could put Shopify's returns the shame moving forward.
Axon is better known by its previous name -- TASER International. But about a year ago, the company announced that it would be changing its name to highlight the growing importance of its up-and-coming body and dashboard camera business. The cameras themselves aren't very special -- any manufacturer with time and money could make them. But the Evidence.com software-as-a-solution storage platform is a huge differentiator.
We are just now coming up on the one-year anniversary of the company's decision to give away the cameras and a one-year subscription to Evidence.com for free. With sky-high switching costs for police departments that stay signed on to Evidence.com, it will be interesting to see how the company's recurring revenue from the service increases.
Just as important, Axon will be offering a records management systems (RMS) to cut down on paperwork officers have to complete starting this year. It would have the same high switching-costs as Evidence.com, and the network effect of gathering more information to feed into its AI ambitions for creating even better RMS solutions. All of this makes me believe that Axon could easily be worth many multiples of its current market cap of less than $2 billion.
This trend is creating decades of growth
Jason Hall (Caretrust REIT Inc.): Shopify has done an incredible job establishing itself as the go-to company for anyone in need of an e-commerce platform. But e-commerce is not the only megatrend that investors can profit from; one that people would do very well to invest in is housing and healthcare for America's aging baby boomers. And I think Caretrust REIT is an excellent way to profit from this need for many years to come.
Caretrust invests in senior housing and healthcare properties, which it then leases to healthcare providers. At last count, the company has less than 200 properties, and there are more than 10,000 skilled nursing facilities alone in the U.S. In other words, it's a small player in a very big field. Three things make Caretrust appealing to me:
- Its small size gives it an advantage in outsize growth via small acquisitions its bigger peers won't even consider.
- Its management team (including its CEO, a founder of the parent company it was spun out of) has a long history of success and insider ownership.
- The 65-plus and 80-plus populations are going to double in size within 20 years.
These three things combine to give Caretrust excellent prospects to deliver fantastic total returns, through a combination of steady dividend growth and capital appreciation. It pays a 5% yield at recent prices, and is likely to regularly increase the payout. It's also only 10% the size of Shopify, and trades for a pretty cheap 13 times funds from operations.
Shopify has had the better run since going public, but I think Caretrust has a real chance to be the better investment over the next decade.
Brian Stoffel owns shares of Axon Enterprise and Shopify. George Budwell has no position in any of the stocks mentioned. Jason Hall owns shares of CareTrust REIT and Shopify. The Motley Fool owns shares of and recommends Axon Enterprise and Shopify. The Motley Fool has a disclosure policy.