It's incredibly rare to find a stock that turns out like eBay (NASDAQ:EBAY). Since going public 20 years ago, investors have enjoyed amazing returns, with the company's stock price having gone up an incredible 5,000% at recent prices. And that doesn't even include the stake in PayPal Holdings Inc that eBay shareholders got in 2015 when PayPal was spun out.
Can you find the next eBay? No investor is good enough to know which stocks will deliver a 5,000% return. But if you identify enough great companies with market-beating potential, and then buy and hold for the long term, your odds of market-beating returns -- and investing in the next eBay -- get much better.
To help identify companies with that kind of potential, we asked three Motley Fool investors for their best current ideas, and they came back with three disruptive companies still very early in their journeys: Crispr Therapeutics AG (NASDAQ:CRSP), Carvana Co (NYSE:CVNA), and BofI Holding, Inc. (NYSE:AX). While there's no guarantee that any of them will deliver the returns eBay investors have enjoyed, they're exactly the kind of companies that have the potential to do so.
A powerful new technology
George Budwell (Crispr Therapeutics AG): Like eBay in its early days, Crispr Therapeutics, a gene-editing company, may also be close to ushering in a game-changing new technology. Specifically, the company is striving to develop a host of potentially curative therapies using the CRISPR/Cas9 gene-editing system.
Crispr and its partner Vertex Pharmaceuticals, for example, are close to initiating early-stage clinical trials for their lead product candidate, CTX-001, as a treatment for the rare blood disorders sickle cell anemia and beta-thalassemia. If successful, CTX-011 could be the duo's first blockbuster therapy, and perhaps even the first commercial-stage product based on the CRISPR/Cas9 gene-editing system at large.
The truly exciting part about Crispr's story, however, is that its gene-editing platform can be applied -- at least in theory -- to a diverse range of serious diseases that currently have no available treatments. Crispr, for instance, is already completing the necessary preclinical work to eventually assess the technology in a multitude of other indications, such as Duchenne muscular dystrophy, cystic fibrosis, cancer, and hemophilia, among others.
That being said, the safety of the CRISPR/Cas9 gene-editing system in human subjects has yet to be established. That's a key issue to keep an eye on for investors because there are some compelling reasons to think that dangerous side effects may be a real problem once human trials get underway in earnest.
On the flip side, biotech heavyweights like Celgene, Gilead Sciences, and Vertex have all shown significant interest in this particular gene-editing platform lately. These key figures in the industry therefore don't seem to think that safety will ultimately be a deal breaker for the CRISPR/Cas9 gene-editing system.
Building a better sales model
Rich Duprey (Carvana): Rarely do innovations come along that change the way cars are bought and sold. GM's Saturn, with its no-haggle pricing and friendly customer service, was unique to the industry and should have shown automakers the direction they need to go, its ultimate demise notwithstanding.
Carvana is doing something similar, smoothing the way for a process even more hated than buying a new car: buying a used one. While you can view as many used cars as you want on the internet, you still have to go to a dealership and negotiate the sale. Carvana makes the process painless, letting you search, purchase, finance, and even trade in your existing car, all in as little as 10 minutes.
You then have a choice of having the car delivered to you the next day or picking it up at one of its Car Vending Machines, literally an automat for car buyers. You're given a big Carvana coin you drop in a slot, then watch as your car is cycled through an eight-story tall glass building. You then get in behind the wheel and drive away. You never once have to deal with a salesman and there's a seven-day money-back guarantee.
Carvana is located in only 50 markets so far, meaning it has plenty of room to grow.
In the third quarter, Carvana reported retail units sold rose 133%, total revenue jumped 128%, and total gross profit per unit increased $395 to $1,742. It's true the company's still generating net losses as it opens up more centers and enters more markets, but as Carvana increases its scale and improves its technology, this should become a more viable solution to car sales than Saturn proved to be.
An early disruptor in a megaindustry
Jason Hall (BofI Holding): BofI is riding the wave created by eBay and its peers two decades ago. It took a long time for consumers to accept e-commerce en masse, but over the past few years -- as the spate of traditional retail store closures has shown -- people have shifted an enormous portion of their shopping dollars online.
That same trend is happening with the multitrillion dollar banking industry, but it's just getting started. And that puts BofI in an excellent position for years of growth.
As a pioneer in branchless banking, BofI has steadily grown loans and deposits near or above double-digit rates almost every quarter for years, while its ultra-low-cost branchless business has helped it deliver solid double-digit earnings growth that's already paid off big for shareholders:
Yet even with all that growth, BofI is still a small bank with less than $10 billion in assets. And don't let the recent price jump -- shares are up 73% since last June -- cause you to skip it for now and hold out for a better price. BofI trades for around 18 times last year's earnings (not crazy-expensive for the earnings growth it delivers) and less than 16 times estimates for this year's earnings.
With a market cap of less than $2.4 billion, a management team that's done a solid job managing the risks of banking, and very strong long-term prospects for growth, BofI's returns could be very eBay-like 20 years from now.