Few trends can have as dramatic of an impact on an investing thesis as market-thumping sales growth. However, those gains aren't valuable if they prove temporary, or if they come only at the expense of weaker profitability.
With that important balance in mind, we asked Fool.com investors to highlight high-growth stocks that appear to have strong fundamentals that back up their sales gains. Here's why Shopify (SHOP +8.34%), Wayfair (W +2.86%), and uniQure (QURE +1.00%) made this list.
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Keep an eye on e-commerce fundamentals
Dan Caplinger (Shopify): It's not often that you get a chance to buy into a high-growth stock with a lot of potential at a discount. Yet that's exactly what e-commerce enabler Shopify has given shareholders lately, with the company having seen its share price take several hits despite seeing fundamental business performance that points to a bright future. In its most recent quarter, Shopify reported 68% revenue growth, outpacing even the ambitious 60% growth rate that most of those following the stock were expecting to see. The company also reported a modest profit, marking the third straight quarter that Shopify has finished in the black despite spending plenty of capital on revenue-enhancing initiatives to maximize expansion.
What many investors are afraid of is the fact that at some point, Shopify will see its growth rates slow. The stock fell initially after the first-quarter report because the company's guidance for the second quarter suggested top-line gains that were in the low- to mid-50%s. In addition, some have taken negative comments from prominent short-sellers as a warning sign of potential trouble ahead. Shopify CEO Tobi Lutke, however, has called those comments "preposterous claims." When more investors look squarely at the e-commerce specialist's performance, Shopify could once again return to the upward trajectory for its stock that many shareholders have come to expect over the past year.
This retailer has room to grow
Demitri Kalogeropoulos (Wayfair): If its latest earnings results are any indication, e-commerce upstart Wayfair has a long runway of growth ahead. The home furnishings specialist expanded sales by 48% in the first quarter, which trounced management's forecast and marked no slowdown from its record-setting holiday quarter.
Those gains included several signs that Wayfair is building a defensible market position. Its active customer base jumped to 11 million from 8.85 million a year ago. Repeat orders accounted for 64% of its volume, too, up from 60% in early 2017.
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Wayfair isn't profitable, and in fact its losses expanded in the most recent quarter. However, that's mainly due to aggressive spending on an emerging international business. The more mature U.S. segment was close to breakeven despite ramped-up price-based competition from rivals like Overstock (OSTK +7.10%).
It's a good sign for the business that Wayfair's sales growth, and adjusted profitability, are both holding steady while competitors do all they can to try to halt its momentum. These wins suggest that management's optimistic hopes of capturing a big chunk of the furnishings market, both in the U.S. and in Europe, might be achievable. And so might its long-term goal of adjusted profitability of between 8% and 10%, up from minor losses in each of the last two years.
The gene therapy revolution is here
George Budwell (uniQuire N.V.): After three decades of disappointing setbacks, our ability to treat genetic-based diseases at the molecular level is finally becoming reality. Thanks to a host of new technologies and a better understanding of the human genome in general, we are now racing to bring novel treatments to bear for rare conditions such as hemophilia and sickle-cell disease, various neurodegenerative disorders, as well as numerous types of blood-based cancers. Fortunately for investors, there are several publicly traded companies that can serve as a way to take advantage of this innovation boom in gene therapy.
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For example, small-cap gene therapy company uniQure could turn out to be a tremendous bargain at current levels if its next-generation platform proves successful. The short story is that uniQure is developing gene therapies that use the adeno-associated virus 5 (AAV5) as its delivery system. In theory, the AAV5 vector should be less prone to triggering an immune response in patients, whereby leading to more effective treatments.
What's going on with the company's pipeline? uniQure is currently gearing up to launch a pivotal-stage trial for its lead candidate, AMT-061, as a curative treatment for the rare bleeding disorder hemophilia B. In addition, the biotech is planning to advance another gene therapy, AMT-130, into a combined phase 1/2 trial for Huntington's disease soon. uniQure also has an ongoing collaboration with Bristol-Myers Squibb to develop gene therapies for cardiovascular diseases.
Although uniQure's pipeline is still a super high-risk proposition at this very early stage in the game, the company's stock would undoubtedly soar if its next-generation platform lives up to the hype. So, it might not be a bad idea to grab a few shares of this promising gene therapy company right now.
