Sometimes a stock's rapid gains are more than justified, but it's good practice to weigh the company's potential in relation to its new, elevated price in order to determine whether it's still a smart investment.
With that in mind, we asked a panel of Motley Fool investors to do some forecasting on three stocks that saw gains of at least 100% in 2017. Read on to see whether they think XPO Logistics (NYSE:XPO), Textainer Group Holdings (NYSE:TGH), and Ubisoft (OTC:UBSF.F) are still worth buying.
Capitalizing on e-commerce
Daniel Miller (XPO Logistics): A small percentage of stocks doubled in 2017, but an even smaller percentage of those are poised to keep that momentum going. XPO Logistics, a leading global provider of supply chain solutions, however, is very well-positioned to thrive as e-commerce continues to explode. XPO Logistics' business is all about transportation and logistics, helping its massive customers manage goods more efficiently through their supply chains.
XPO Logistics' stock price jumped 112% during 2017, but as consumers continue to purchase more and more stuff online, internet retailers will increasingly rely on companies like XPO to help move products to consumers. XPO understands this and recently launched a new flexible distribution model for omnichannel retailers and e-commerce customers that could push its top line even higher.
In late April, the company launched XPO Direct, which is a new nationwide shared-space distribution model that will use the company's broad North American warehouse footprint to give its customers a way to position goods within two days' delivery for 95% of the U.S. population. One of the most expensive parts of the e-commerce equation is the "last mile," essentially the last leg to get the product in consumers' hands. XPO clearly sees the opportunity to utilize its footprint and offer customers a way to shorten delivery times without adding expensive warehouse overhead.
Helping clients move products to consumers' front doors is XPO's business, and it's well-positioned to use its scale and footprint to capitalize on the growing e-commerce trend. As a result, XPO still seems like a long-term buy.
France's biggest gaming publisher
Keith Noonan (Ubisoft): Video-game publisher Ubisoft saw its share price climb roughly 117% in 2017, and its upward trek has continued into 2018, with the stock posting roughly 33% gains year to date. The Paris-based company is most known for franchises like Assassin's Creed, Rainbow Six, and Far Cry. Its big properties have been posting strong performances lately, and Ubisoft is benefiting from the same trends that have helped other leading video-game companies deliver fantastic returns in recent years.
The rise of digital distribution and the games-as-a-service model means that publishers are cutting out retail middlemen and selling add-on content directly to consumers, making business more profitable and predictable. Ubisoft's sales climbed 18.6% year over year in the company's March-ended fiscal year, operating income was up 26.2%, and the company set a record for operating margin at 17.3%.
In addition to broader industry tailwinds, Ubisoft has been successfully strengthening its franchise catalog, with both new releases and legacy titles exceeding expectations. The company released Far Cry 5 at the end of March, and the game generated $310 million in revenue in its first week of sales -- a strong debut and a record for the franchise. Turning to an older title, the company's Rainbow Six: Siege debuted in 2015 and is still posting strong sales. Viewership for its esports season-finale tournament was up 300% compared to the prior year, and the game has seen sustained player engagement thanks to its well-received core gameplay experience and content expansions.
With the company emerging from the threat of a hostile takeover from Vivendi and recently forming a partnership with Chinese multimedia giant Tencent Holdings, Ubisoft is free to chart its own course and looks to be making some smart alliances. As long as favorable trends persist in the gaming industry, I think the stock has good chance of continuing to outperform the market over the long term.
Shipping containers for the win
Maxx Chatsko (Textainer Group Holdings): Shares of the world's third-largest shipping container lessor gained an incredible 188% in 2017, but have fallen by double digits year to date. Wall Street's concerns are easy to understand.
The shipping industry on the whole has a great track record of...not having a great track record. While vessel owners have overshot future demand time and time again to lead their industry into epic downturns, the big shipping container owners are currently placing a healthy amount of new orders. Some are worried this won't end well, but Textainer Group Holdings is confident that the current tailwinds in the industry will persist for quite a bit longer. Management might be right.
The business is built on three types of sales: the initial lease on a brand-new container, leasing out an existing container for the second (or more) time, and selling the container at the end of its useful life. Business is booming for each of those activities right now.
New containers are in high demand from years of underinvestment and after new paint regulations in China led to an industrywide manufacturing bottleneck in the last year. That has pushed up lease rates. In fact, demand is so high right now it has forced Textainer Group Holdings to delay disposing of older containers to help smooth out the mismatch in supply and demand. That has led to a shortage in stationary containers, which has pushed those prices up. In other words, as new containers trickle onto the market, the company and its peers can resume retiring assets at the end of their lives while enjoying sharp premiums -- and all of these factors should remain in place for the foreseeable future.
That suggests there's plenty of upside for investors. Textainer Group Holdings delivered an operating margin of 36.5% in the first quarter of 2018. That's up from an operating margin of just 17.2% in the year-ago period, but still a far cry from historical operating margins around 50%. The best part is that most of the future gains will come from incremental income earned by existing assets. Many containers under leases today are being rented out at lower prices due to the market realities of years' past. But as those leasing agreements expire, the same containers can be rented out at today's substantially higher lease rates. To me, it's pretty simple: The large drop in the share price year to date and continued strength of the business make Textainer stock a buy.