Walmart was founded in 1962 and went public in 1970, starting a journey that has seen the business dramatically expand its footprint and deliver tremendous returns for shareholders. Since its IPO, the company's share price has climbed more than 6,800%, and its return price with dividends reinvested amounts to gains of more than 10,200%. That's the type of performance that's likely to have a life-changing impact for shareholders -- and there are other companies just starting out on similar trajectories.
With that in mind, we asked three Motley Fool investors to spotlight a company that they think is in the early stages of making a Walmart-like run. Here's why they think Canopy Growth Corporation (NYSE:CGC), Antero Midstream Partners (NYSE:AM), and Shopify (NYSE:SHOP) have what it takes to deliver tremendous long-term returns.
The Walmart of weed?
Keith Speights (Canopy Growth Corporation): This comparison could cause Sam Walton to spin in his grave, but one stock that I think sort of feels like Walmart in 1970 is Canopy Growth Corporation. In a way, Canopy Growth just might be the Walmart of weed.
The Canadian marijuana grower is on the verge of really hitting the big time -- just like Walmart was back in the early '70s -- and Canopy has positioned itself very well in the international medical-marijuana market. The company reported record revenue in Germany in its last quarter and is targeting nearly every market in countries that have legalized medical cannabis.
However, the big near-term catalyst for Canopy is the impending legalization of recreational marijuana in Canada this July. Although some have questioned whether that date was realistic, Canada's public safety minister recently stated that efforts are "on track and on time."
Canopy Growth stock might look ridiculously expensive right now, with shares trading at a whopping 93 times trailing-12-month sales. I doubt Walmart stock ever traded at that kind of sales multiple. But if you consider that the Canadian recreational-marijuana market could be worth well over $5 billion annually and that international sales could also take off in a major way, Canopy's current market cap of more than $4 billion seems much more sane than it does at first glance.
Just hitting its stride
Matt DiLallo (Antero Midstream Partners): Pipeline and processing company Antero Midstream Partners has been expanding at a fast pace since it came public toward the end of 2014. Distributable cash flow has already surged 150% on a per-unit basis over that time frame, fueled by the company's strategy to acquire and then build out the necessary infrastructure to support its fast-growing parent. With that initial platform developed, Antero Midstream is now just starting to hit its stride, expecting to deliver high-octane growth in the coming years as it completes high-return expansions of its asset base.
Antero Midstream's current plan is to invest $2.7 billion over the next five years in building the pipelines and processing capacity necessary to support the planned growth of its parent company. Furthermore, Antero intends on financing that growth with a combination of internally generated cash flow and new debt. Given the high returns the company anticipates earning on these projects, Antero's cash flow is on pace to rise by more than 140% on a per-unit basis through 2022. That fast-paced growth should support 28% to 30% annual growth in the company's distribution to investors through 2020 and 20% yearly increases in 2021 and 2022. In hitting those targets, the company's yield would grow from an already attractive 5.3% up to a jaw-dropping 15% in five years.
However, units aren't likely to fetch quite that high of a yield in the future. Instead, the company's valuation should rise at around the same rate as the distribution, suggesting a total return above 25% annually. To put that into perspective, it's better than Walmart's 16.5% annualized return since 1970.
Tap into the growth of e-commerce
Keith Noonan (Shopify): Like Walmart, Shopify is a player in the fast-developing world of e-commerce, but it's more of a pure play in the space and is at an earlier stage of its overall growth trajectory. The company went public in 2015 and provides customizable online-sales platforms -- a niche market in which it's carved out a leadership position and one that has tremendous long-term potential.
Shopify recently reported full-year earnings results, delivering 72% year-over-year sales growth compared with the previous fiscal year and an 82% increase in gross profit. Its operating loss as a percentage of revenue also declined from 10% to 7%, and a highly scalable business model and huge addressable market paint the picture of a long runway for growth.
Right now, primarily small and medium-sized businesses use Shopify's services. However, it's also growing the size of its high-end customer base with its Shopify Plus platform. In the December-ended quarter, Plus grew to account for 21% of monthly recurring revenue, and the company is on track to continue expanding its customer base among businesses of all sizes.
Shopify counts Amazon.com as a partner and also has sales portals set up through Facebook, Instagram, and eBay -- and the company reports that merchants on its platforms are increasingly making use of these partner sites as sales channels. That's a trend that positions Shopify and its merchant customers to benefit from the expansion of some of the biggest sites on the internet. Shopify has the potential to benefit from momentum in other high-growth industries as well. As just one example, the company was recently tapped to handle Ontario's online marijuana sales.
With its highly regarded services and e-commerce momentum and other tailwinds at its back, Shopify is a stock that has a long runway for growth.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Keith Noonan has no position in any of the stocks mentioned. Keith Speights owns shares of Facebook. Matthew DiLallo owns shares of Amazon, Facebook, and Shopify and has the following options: long January 2019 $18 calls on eBay and short April 2018 $35 calls on eBay. The Motley Fool owns shares of and recommends Amazon, eBay, Facebook, and Shopify. The Motley Fool has the following options: short March 2018 $200 calls on Facebook and long March 2018 $170 puts on Facebook. The Motley Fool has a disclosure policy.