High-growth stocks can actually come in all shapes and sizes. They are often expected to be brand-new, tiny companies, but in some cases, a business that's been around for nearly a century could have its best days still ahead. Sometimes it's a tech company, but in other cases, it might operate in an industry you never expected to hear associated with growth.
Case in point: We asked three Motley Fool investors for their best high-growth stock ideas, and they gave us some unexpectedly insightful ideas: A small-cap upstart in a multi-trillion dollar industry, NV5 Global Inc (NVEE +0.00%), nearly 90-year-old uniform supplier Cintas Corporation (CTAS 0.43%), and video game and esports giant Activision Blizzard, Inc. (ATVI +0.00%). Keep reading to learn why these high-growth stocks are set to continue soaring in the years to come.
Image source: Getty Images.
A tiny player in a megaindustry
Jason Hall (NV5 Global): Since going public in 2013, infrastructure engineering and consulting company NV5 Global has already made for an incredible investment:
NVEE stock price change chart. Data source: YCharts.
Yet even after generating nearly eight-fold gains, investors should put it on their shortlist of high-growth stocks.
With 2017 revenue of $333 million and a market cap below $800 million, NV5 is a tiny speck in the global infrastructure industry, which tops $3 trillion in yearly revenues. But it is growing at a remarkable rate, having reported a 45% increase in sales in the first quarter, and earnings per share up 86% year over year. This led to a double-digit increase in the company's own guidance for full year sales and earnings.
So what's driving the growth, and how can management keep it up? In short, a combination of organic growth, as well as acquisitions. Frankly, growth via acquisition can be very difficult to effectively sustain, but NV5's founder and CEO, Dickerson Wright, has a long history of success in his industry as a successful consolidator. And with more than 140,000 engineering firms in the U.S. alone (most of which are small, privately owned businesses) it's not unreasonable to expect Wright -- who owns over 20% of NV5 -- to continue succeeding at what he's proven good at. With global infrastructure spending set for multiple decades of growth, I'm personally invested in NV5's ability to keep it up.
Trading for between 27 and 30 times company guidance for 2018 earnings, NV5 isn't a bargain-bin stock. But high-growth small-cap stocks with a heavily invested founder running the show don't often come cheap. Based on the potential for massive long-term returns, NV5 is probably worth paying a premium for.
Dull business, exciting growth
John Bromels (Cintas): When most people think "high-growth," they're thinking tech. But it might surprise you to learn that uniform rental and business services company Cintas has actually outperformed major tech companies like Apple, Google/Alphabet, and Tesla over the last five years:
CTAS Total Return Price. Data source: YCharts.
Nearly 90 years old, Cintas has grown its business the old fashioned way: by expanding its core uniform rental service into more markets; by snapping up smaller competitors like G&K Services, which Cintas bought last year; and by launching new services that are easy to add to its existing offerings.
Cintas' business model -- operating a fleet of trucks that picks up dirty uniforms and drops off clean ones at business locations on a regular schedule -- has turned out to be easy to apply to other services, like floor mats, restroom supplies, and first aid and safety equipment. By cross-promoting these services, Cintas has an advantage against smaller competitors. That explains why the company's smallest division -- first aid and safety services -- has been growing at an even faster clip than the rest of the company.
With Cintas the clear leader in a fractured nationwide market, there are plenty of further growth opportunities available through acquisitions or organic growth. Cintas is a strong bet for future growth.
A new growth story
Daniel Miller (Activision-Blizzard): Whether you've played an Activision-Blizzard game -- which includes franchises such as Overwatch, World of Warcraft, and Call of Duty, among many others -- or simply know it as a gaming stock, the company could soon become even more of a household name as esports continues to gain popularity.
Newzoo, a global leader in esports and mobile intelligence, estimates the total esports audience will post 14.4% compound annual growth rate between 2016 and 2021. That growth is expected to push total audience to 380 million viewers in 2018. Further, esports revenue streams are exploding with Newzoo estimating the global esports economy will grow to $905.6 million in 2018 which would be an incredible 38% year-over-year growth -- revenue could reach $1.65 billion by 2021.
Image source: Getty Images.
Esports is a significant opportunity with millions of highly engaged viewers and players, and Activision Blizzard is tapping into that opportunity with its Call of Duty World League, MLG Network and Overwatch League. The gaming company also has a merchandising program designed for the global gaming audience, and is taking advantage of its popular content through licensing. Overwatch's merchandising program alone has a long list of partners including Hasbro (Master Toy); NERF (Blasters); LEGOGroup (Construction), among others.
Activision-Blizzard already has a wildly successful business -- including the next highly anticipated installment of its Call of Duty franchise, Black Ops 4, which launches in October -- and a stock price that's soared 442% over the past five years, but if it continues to find ways to generate revenue from the surging esports economy, it could be a whole new growth story for investors.
