There are plenty of publicly traded companies that get lots of attention from Wall Street, but that doesn't mean that the best investments are the ones that are grabbing all of the headlines or dominating analysts' coverage. Many times, investors can find great companies that have the potential to be fantastic long-term investments -- if they know where to look.
We asked some Motley Fool contributors for a few stocks that aren't exactly on Wall Street's radar, and they came back with Gaia, Inc. (GAIA -1.52%), Kinder Morgan (KMI -0.64%), and HubSpot (HUBS -0.78%). Here's why.
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Relaxing has its rewards
Todd Campbell (Gaia, Inc.): It takes a bit of time for small-cap stocks to capture the attention of Wall Street, and perhaps that's why only one Wall Street analyst follows Gaia, Inc, a fast-growing provider of online subscription video content, including yoga training.
Over the past two years, Gaia's shares have more than doubled, yet it still boasts only a $245 million market cap. Its small size is probably why its run-up has gotten little attention from market-watchers, but I think that's about to change. Why? Because its revenue is skyrocketing, and its subscription-based business model provides a steady stream of predictable cash flow.
In Q4, an 80% jump in subscriptions to 364,500 resulted in a 94% jump in streaming revenue, and that catapulted Gaia's total revenue 77% to $8.4 million. Full-year sales clocked in at $28.3 million, up 64% year over year.
Admittedly, Gaia's still losing money, but that's because it's investing big money in marketing to grow its subscribership. Its goal is to have 1 million subscribers by 2019 and to generate $150 million in revenue and $60 million in pre-tax income by 2021.
It's anyone's guess if Gaia will achieve its targets, but I think it has a good shot, especially since it's run by been-there-done-that CEO and founder Jirka Rysavy, who also founded Corporate Express, a publicly traded office products company that was sold in 1999 for $2.3 billion.
A neglected infrastructure giant
John Bromels (Kinder Morgan) Once bitten, twice shy: that's my guess as to why the market is giving the cold shoulder to the world's largest pipeline owner, Kinder Morgan.
In 2015, investors fled the stock in droves after management announced a -- probably necessary -- quarterly dividend cut from $0.51/share to $0.125/share, where it still sits today. Then, in 2017, the company's share price managed to lag its peers even as it delivered on its strategic plans. That's gotten the company's share price down to near-historic lows.
Better yet for investors, the company's valuation as measured by enterprise value to EBITDA -- a better metric than P/E ratio for pipeline companies, because it strips out depreciation -- is its lowest in 10 years. Plus, the company is planning to up its dividend by 60% in 2018, with further increases projections for future years. It's also continuing to develop new infrastructure to maintain its industry-leading position. And, with North American gas production at record levels, the company should have plenty of market for its services well into the future.
This represents a great opportunity to pick up an off-the-radar stock with a lot of potential for an off-the-radar price.
Don't overlook this marketing platform play
Chris Neiger (HubSpot): Unless you love keeping up with tech stocks you probably haven't heard much about HubSpot. The company is a rising cloud-based marketing platform that's helping companies boost their sales and, in turn, is seeing its own top-line pop. HubSpot's online freemium platform helps its customers connect with potential clients, generate leads, and eventually close sales. And so far that system is working like gangbusters.
In its fourth quarter, 2017 HubSpot's sales jumped 39% year over year to $106.5 million. That increase came as HubSpot has been able to grow its customer base to more than 40,000 at the end of the year, an increase of 48% from the year-ago quarter. HubSpot's freemium model means that it allows users to use its platform for free and then gives them a more complete version when they upgrade. That's working well for the company considering the average revenue per customer was more than $10,000 in the fourth quarter.
The company isn't profitable on a GAAP basis; it lost $11.5 million in the fourth quarter, or $0.31 per share. But investors should remember that HubSpot is currently in growth mode, and as its customers and sales continue to grow so should the company's bottom line.
HubSpot's shares trade at about 116 times the company's forward earnings, which is expensive using any metric, and its stock price has skyrocketed 84% over the past 12 months. But the company is already proving that it can grow customers at a healthy clip, and its small size, relative to other tech players, means that this under-the-radar stock isn't anywhere near finished growing.
