Fast-growing companies are usually doing something right. Investing in these companies, even at lofty valuations, can work out wonderfully in the long run if that growth continues. When your time horizon is long, the price you pay doesn't matter all that much if you're right about the company's growth prospects.
Which growth stocks are your best bets today? Three of our Foolish investors think you should take a look at Teladoc (TDOC -7.00%), Skechers (SKX -0.50%), and Centennial Resource Development (CDEV 0.23%). Here's why.
Making healthcare a little easier
Nicholas Rossolillo (Teladoc): Back in 2015, MIT Technology Review named Teladoc one of the 50 smartest companies in the world. The company earned a spot on the list because of its disruptive technology that allows patients to access medical advice by skipping the office visit, and instead having an appointment with one of Teladoc's in-house general care physicians and specialists via the internet, an app, or the phone.
The company earns revenue through subscription fees from employers and insurance companies that sign up to use Teladoc's service and network of doctors, as well as visit fees that get paid out of pocket or covered by insurance plans. Because visits are remote, the service can help organizations save on healthcare costs and save patients' time. That combination of savings and convenience has helped Teladoc grow its number of members. At the time it was featured on MIT Technology Review's list, the company had 10 million member subscriptions. At the end of 2017, that number had expanded to 23.2 million.
That growth in membership has led to big gains. Revenue increased 89% in 2017, or 43% when excluding the company's acquisition of Best Doctors specialist care service. Total "visits" to a Teladoc general practitioner or specialist during the year were 1.46 million, a 54% increase over 2016.
Getting patients to use their computer or smartphone to consult a physician, and convincing insurers and businesses to add virtual care into the mix, could take some time. In the meantime, Teladoc is running at a loss while it focuses on top-line expansion. However, it's obvious that the service is gaining traction, and with only 23 million members, it has a lot of room for further gains.
Growth and value
Tim Green (Skechers): After going through a bit of a rough patch in late 2016 and early 2017, involving slowing growth and concerns about the U.S. wholesale business, footwear company Skechers is once again firing on all cylinders. Revenue soared 27% year over year during the fourth quarter, driven by 40.2% growth in the international wholesale business, 11.6% growth in the U.S. wholesale business, and global same-store sales growth of 12%.
Even with this impressive growth, Skechers stock isn't all that expensive. Once you back out the net cash on the balance sheet, which totaled $655 million at the end of the fourth quarter, Skechers trades for about 20.5 times adjusted earnings. Using the average analyst estimate for this year, the cash-adjusted P/E ratio falls to just 16. Skechers is undoubtedly a growth stock, but it's a value stock as well.
Of course, there are risks. With the possibility of a full-blown trade war between the U.S. and China, Skechers could get caught in the crossfire. The company's China business is booming, with sales up 78% in the fourth quarter. Annual sales in the country totaled about $575 million last year. Any slowdown would be a major problem, given that the international business is the company's main growth engine.
I don't think that risk is a strong enough reason to avoid the stock. With stellar performance in the fourth quarter, a rock-solid balance sheet, and an attractive valuation, Skechers is a growth stock that should be on your radar.
Growing at breakneck speed
Matt DiLallo (Centennial Resource Development): Last year, little-known Centennial Resource Development increased its oil production by a jaw-dropping 278% versus 2016. While that was off a low starting point -- this oil stock is very early in its life cycle, having formed about two years ago to take advantage of the eventual recovery in the oil market -- that upturn took hold at a time when crude prices rebounded from the low $40s last year to the mid-$60s in recent weeks.
That combination of higher oil prices and blistering growth has already delivered impressive returns for investors. Since the current management assumed control in mid-2016, Centennial Resource Development's stock is up more than 80%. And the executive team is just getting started turning this company into a value-creating machine.
The company expects oil output to rise another 85% this year from last year's average of 19,161 barrels per day. That puts it on pace to produce upwards of 65,000 barrels per day by 2020. That's not only well above the 50,000 barrels a day executives initially expected when the company started out, but it also marks one of highest growth rates in the industry. That fast-paced growth has the potential to continue fueling top-tier returns for investors even if the price of oil doesn't recover any further, though the company expects oil to keep rising.