Woulda, coulda, shoulda: Investors can drive themselves crazy playing that game, over stocks they "should" have bought years ago that went on to generate ridiculously high returns. NVIDIA (NVDA -3.87%) is just such a stock, as it's returned more than 1,500% over the last five years, far outstripping the gains posted by market darlings Amazon.com and Netflix.
But just as the market itself is a forward-looking machine, we asked three investors to pick one stock they believe could put NVIDIA's returns to shame in the future. They chose Atlassian (TEAM -1.08%), Appian (APPN -1.66%), and Zillow (Z -1.33%).
Teamwork equals growth
Maxx Chatsko (Atlassian Company): Two years ago, collaboration software leader Atlassian sported a market cap of about $5 billion. After posting double-digit year-over-year revenue gains in every quarter since, the company has tripled its valuation to over $15 billion today. It was well-earned, but it could be just the beginning.
The company provides various enterprise software products that allow teams to work together more efficiently, whether through daily messaging or task-tracking. It's a valuable niche. In its fiscal third-quarter 2018 (ended March 31), Atlassian grew revenue 40% compared to the prior year. Despite pouring money into growth, the software leader managed to shrink its operating loss by more than half and narrow its net loss slightly.
However, unlike many hypergrowth tech companies, Atlassian sports a healthy cash flow: the business generated $229 million in operating cash flow in the last nine months. It also ended its most recent quarter with $764 million in cash and short-term investments. That will provide a great foundation for continued research and development, or a strategic acquisition like those management has pursued in the past.
Simply put, the company is growing at a torrid pace in a fast-expanding market. With fiscal full-year 2018 revenue expected to land around $863 million, compared to just $620 million in fiscal 2017, there's no sign that Atlassian is anywhere near exhausting its market opportunity. The company provides investors with the ultimate combination of growth and profit potential, which is difficult to find.
If software and apps are the future...
Nicholas Rossolillo (Appian): Software developers are in short supply in the U.S. as more businesses make digital transformations. While that's great news if you're in the business, the shortage is putting strain on employers trying to find and retain talent. According to Forrester Research, companies that lag behind in hiring could end up paying 20% more to recruit software developers and engineers in 2018.
Enter Appian, a technology outfit that offers cloud-based services to help businesses make software systems and apps in a do-it-yourself, "low-code" environment. Appian is a leader in making digital development a snap, even for organizations that lack the advanced technical know-how of a software engineer, let alone an entire IT department.
Appian has all the makings of a great growth story. It's still small, touting a current market cap of only $1.9 billion (NVIDIA's is at $150 billion). It's also posting strong numbers. Revenue grew 33% in 2017, and the first quarter of 2018 extended that growth with another 35% gain. Management thinks that its most important source of revenue -- subscriptions -- will grow at least 30% in 2018, helping eclipse the less reliable professional services revenue stream.
Making the switch to a digital-first organizational enterprise is more important than ever, but it's also getting costlier to execute. That could be a great long-term tailwind filling the sails of this technology company. It could also provide the catalyst its stock needs to make big gains in the years ahead.
They're not making any more land
Rich Duprey (Zillow): Since we're not in the real estate bubble that preceded the Great Recession, it may seem counterintuitive to select a company whose main focus is the buying and selling of houses. Zillow, however, may offer returns like the no-money-down craze that epitomized the go-go years of real estate investing -- but without nearly the same amount of risk.
That's because Zillow currently generates around $1.1 billion in revenue through the sale of advertising to real estate professionals, who in return receive quality leads from buyers and sellers. Yet the company is also keenly aware that a downturn in the real estate market could pinch that revenue, as would interest rates that rise too much and dampen demand.
Also, because it understands the real estate market so well, Zillow is now investing in real estate itself. It will create a marketplace where sellers can get an instant quote for their house; if accepted, Zillow will buy it, then turn around and flip the property. Since the company has its fingers on the pulse of the market, it can perform the work of real estate agents without having to involve them in the process.
This could be a big opportunity; by matching other buyers and sellers, Zillow is essentially performing all the tasks itself. Without having to rely upon a fickle agent market, Zillow has the chance to soar.