The first quarter of 2018 is in the books, and it's fair to say that the market has seen a volatile start to the year. With leading indexes still not far removed from the record highs set last year, and some choppiness in the market, separating the growth stocks with compelling risk-to-reward profiles from those running on hype has taken on added importance.
With that in mind, we asked three Motley Fool contributing investors to identify a company that's on track to continue operating at the high levels needed to deliver strong returns. Read on to see why they think Shopify (SHOP 0.60%), Proto Labs (PRLB 5.00%), and Take-Two Interactive (TTWO -0.05%) are top growth stocks to buy this April.
Taking advantage of a pullback
Dan Caplinger (Shopify): The e-commerce revolution has reached critical mass, and businesses across the economy are looking for ways to put the power of the internet to work to generate sales and profits. Shopify aims to make it easier for businesses of all sizes to establish an e-commerce presence, with simple tools designed to allow merchants to present goods, accept orders, take payments, and fulfill requests in a timely and efficient manner. Most of Shopify's most successful customers not only stick with the platform, but take greater advantage of it through upgrading to higher levels of service, and the company's retention rates are quite attractive.
What makes April an interesting time to consider Shopify is that the stock has seen a big pullback of more than 20% during the last couple of weeks. Short-selling specialist Andrew Left of Citron Research has been critical of the stock, and he doubled down on his bearish stance by arguing that the troubles social media giants have had lately could have a negative impact on Shopify's business as well. Yet at this point, investors appear to be reacting as if a worst-case scenario for Shopify's key social media partners was assured. If data-abuse allegations don't lead to regulation, then there's little reason to think e-commerce tools won't remain very much in demand -- and that Shopify will have room to regain its lost ground in short order.
How to make money in 3D printing
Travis Hoium (Proto Labs): 3D printing and other forms of rapid prototyping have been around for decades, but they've become a booming business as computer design software has evolved and prototyping technology has improved in the last few years. What may not seem logical is that it isn't 3D printer manufacturers who are benefiting most from the growth in rapid prototyping; it's a company like Proto Labs, who has built a booming business.
Proto Labs acts as a prototyping enabler for engineers and designers. The company offers 3D printing, injection molding, and CNC machining with a quick turnaround, enabling its customers to test a variety of different materials and manufacturing methods very quickly. From the customer's perspective, they're getting a wide array of services and only paying for what they use, rather than having an underutilized, expensive 3D printer sitting on their desk. From Proto Lab's perspective, they can spread the cost of equipment across thousands of orders, lowering the cost of each part made. The financial results of the model speak for themselves.
As the cost of 3D printers come down and technology improves, it expands the market for Proto Labs. The company can offer customers the processes and materials they need at a price that's far lower than buying rapid prototyping technology itself. That's a great place to be as a business, and I think growth will continue for years to come.
Keith Noonan (Take-Two Interactive): Video-game publisher Take-Two Interactive's stock has climbed more than 500% over the last five years thanks primarily to the continued success of its 2013 release Grand Theft Auto V. Still thriving, the game landed as North America's fifth-best selling in the month of February and is recording record online player engagement. That's evidence of the incredible staying power that has the game's lifetime shipments on track to pass 100 million units before the fiscal year is out -- and it looks like there's still gas in the tank.
Grand Theft Auto and sports properties like NBA 2K give Take-Two a strong group of core franchises, and success in building out the rest of its franchise pipeline could kick the business into a new growth phase. The next installment in the company's popular Red Dead Redemption franchise will debut in October, finally arriving after a string of delays. Take-Two Interactive trades down roughly 12% year to date due in part to the most recent postponement of this crucial 2018 release. A postponed release date is sometimes a sign that development is not going well, but I expect the upcoming sequel to go on to be a big hit and solidify Red Dead as a top industry franchise.
The game's developer has a history of taking extra time to put polish on crucial releases, and with GTA V performing at such a high level -- and considering the benefits of debuting a big release near the holiday sales period -- Take-Two could have multiple incentives pushing back Red Dead Redemption 2. I'd bet on it working out, and shareholders have other catalysts to look forward to, including, but not limited to, mobile growth, increasing adoption for digital game distribution, and expansion potential in emerging markets.
With strong core assets and a range of tailwinds working in its favor, I think Take-Two stands out as a top growth stock this April.