With Facebook (NASDAQ:FB) caught in a data security crisis that could have vast implications for the company's business, it may not be all that tough for a growth stock to beat out shares of the social media giant. Facebook has produced stellar returns in the past. The future may be a different story.
Three of our Foolish investors think XPO Logistics (NYSE:XPO), iRobot (NASDAQ:IRBT), and Pioneer Natural Resources (NYSE:PXD) have the potential to reward investors more than Facebook in the future. Here's why.
The straightest line to growth is XPO
Rich Duprey (XPO Logistics): Diversified logistics operator XPO Logistics has become the centerpiece of speculation among those who think either Home Depot or Amazon.com (NASDAQ:AMZN) will buy the company. A good case can be made for either of them, though the latter is launching its own fleet of trucks and may have greater need for its logistical services.
XPO is the brainchild of Bradley Jacobs, a financier who took United Waste Systems and grew it through roll-ups until it was acquired by Waste Management and then repeated the formula with United Rentals, taking it from a small equipment rental company to a national player by buying up smaller shops. He used the same playbook with XPO, turning it from a asset-lite logistics company into a major trucking firm after acquiring Pacer International several years ago.
With the launch of the new "Shipping With Amazon" package delivery service that threatens to eventually take on UPS and FedEx, Jacobs may be in the catbird seat again of cashing out again.
Even if it doesn't happen, XPO Logistics should continue its torrid pace of growth. Analysts expect the global intermodal freight transportation market to grow at a compounded annual rate of 16.4% through 2019, hitting $26.2 billion. Intermodal transport is the transfer of products across multiple modes of transportation, from ocean carrier to truck and railroad, and XPO has proved itself the leader in getting stuff from here to there, or helping others do it.
Over the past three years, XPO is already beating Facebook's growth pace, and it should continue doing so going into the future.
Tim Green (iRobot): Shares of iRobot took a beating earlier this year when the company's earnings guidance for 2018 fell short of analyst expectations. The company expects to produce earnings between $2.10 and $2.35 per share, far below the average analyst estimate of $2.80.
That guidance still represents solid growth over the $1.77 per share the company reported for 2017, so the post-earnings reaction may be overdone. The stock is down about 37% from its 52-week high.
With the stock beaten down, and with both revenue and earnings still growing at a double-digit pace, iRobot has the potential to produce exceptional returns over the coming years. Sales of the company's robot vacuums and mops should benefit from consumers increasingly adopting smart home devices, automating tasks with all manner of connected gadgets.
One reason the stock was hit so hard by the lackluster guidance was its optimistic valuation. Even after the post-earnings plunge, iRobot stock trades for about 30 times the midpoint of the company's 2018 earnings guidance. That's not quite nosebleed territory, but it does bake in growth expectations that the company will need to match for the stock to resume its march higher.
iRobot is a fairly expensive growth stock. But with plenty of room for growth in the coming years, the stock could be a great investment if enough goes right for the company.
Tech-like returns from the oil patch
Matt DiLallo (Pioneer Natural Resources): In 2016, little-known oil producer Pioneer Natural Resources unveiled a bold plan to transform into an oil giant within a decade. The company estimated that its resource-rich position in the Permian Basin could provide it with enough fuel to grow its oil and gas production at a 15% annual rate for the next decade, which would boost its output up to a big oil-like average of 1 million barrels per day by 2026.
That said, what was more impressive is that Pioneer anticipated that this plan would grow its cash flow at an even faster 20% compound annual growth rate without the benefit from higher oil prices. That's elite-level growth, not just for an oil stock, but in most industries. In fact, according to an analysis from J.P. Morgan, only 15 large companies managed to grow cash flow at that rate in the past decade, most of which were tech giants.
Another thing the bank noted was how well these stocks performed in that decade. On average, they delivered a total shareholder return of 662% or about 19% per year. For perspective, Facebook's stock has run up about 360% since going public six years ago.
While there's always a risk that oil prices could take another tumble and hold Pioneer back, it's just as possible that they could soar in the coming years, adding more fuel to its ability to grow cash flow quickly. While that exposure to oil increases' Pioneer's risk profile, it has the potential to put Facebook's returns to shame in the decade ahead.