You can't deny that investors who recognized Netflix's (NFLX +0.40%) staggering potential early on have already enjoyed life-changing gains. And following its post-earnings plunge earlier this week, there's certainly a case to be made that the video-streaming giant will continue to beat the broader market.
Still, that raises the question: Are there any stocks today that could put Netflix's returns to shame?
Read on to learn why three top Motley Fool investors believe that Wix (WIX 6.41%), Amazon.com (AMZN +1.93%), and A.O. Smith (AOS 1.22%) will do exactly that.
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Let Wix build your market-beating gains
Steve Symington (Wix): Shares of Wix have more than doubled from their 52-week low set late last year, but I think the website design platform has plenty of room to run.
For one, Wix's total registered users are growing quickly, up 21% year over year last quarter to 125 million, with most people opting for Wix's free ad-supported solution. And more users are discovering the utility of its paid version at an even faster rate, with premium subscriptions soaring 29% to 3.5 million over the same period. As such, revenue last quarter climbed an impressive 49% year over year to $137.8 million.
But that's only the tip of the iceberg. As Wix continues to expand its capabilities -- particularly given last year's launch of Wix Code, which caters to developers of all skill sets -- it will be able to command an ever-growing slice of the estimated $300 billion global market for website building.
With the company still yet to achieve sustained GAAP profitability, but already comfortably free cash flow-positive, I think early investors still have plenty of time to buy in and watch Wix's long-term story play out.
In a battle of cash flow, this Goliath crushes Netflix
Sean Williams (Amazon.com): While it's not exactly the most groundbreaking selection, my suspicion is that, among the FANG stocks, Amazon, not Netflix, is the one that's going to be the most unstoppable in the years ahead.
Though all FANG stocks have incredible moats they're working with, none has the reach of Amazon, which is a kingpin in e-commerce, and an ever-growing presence in cloud computing. What's perhaps most interesting is that Amazon Web Services (AWS) consistently accounts for a majority of the company's profitability and margins, despite comprising a relatively small piece of the revenue pie. In the first quarter, Amazon tallied $51 billion in consolidate sales, $5.4 billion of which came from AWS. Yet of the aggregate $1.93 billion in operating income Amazon reported, $1.4 billion came from AWS. Considering that AWS has the capability of growing by 30% to 50% annually for the foreseeable future, in my opinion, it should result in a notable improvement in Amazon's operating margins and cash flow.
Speaking of cash flow, it's perhaps my favorite metric to consider with FANG stocks like Amazon and Netflix. Whereas Netflix is reinvesting so much in its international expansion that it's expected to see an operating cash outflow in 2019, Amazon's cash flow per share, generated from a loyal e-commerce customer base and its aforementioned growing AWS operations, is expected to grow by 37% per year through 2021. After reporting $37.39 in cash flow per share (CFPS) in 2017, Wall Street anticipates that Amazon can grow its CFPS to $132.90 by 2021. Traditionally valued at a price-to-cash flow per share of between 25 and 30, Amazon is on track to halve this figure by 2021. Translation: It's still inexpensive.
This cash flow is a key cog that allows Amazon to be a disruptor. With cash to spare, Amazon can test the waters in a number of industries. The company's recent acquisition of PillPack for $1 billion allows Amazon to get its foot in the door with regard to selling prescription medicines. In particular, Amazon has the potential to expedite the time it takes to get prescription medicines into the hands of patients, and it could use its pricing power to pass along savings to cash customers.
Amazon is a Goliath, and in my opinion one of the few stocks that could run circles around Netflix.
This Asian opportunity is huge
Reuben Gregg Brewer (A.O. Smith Corporation): Given the choice between a hot or cold shower, I bet you'd go with hot. Just about everyone would. But not everyone has the option, particularly in emerging markets that are just moving up the socioeconomic ladder. In countries like that, hot water is an affordable luxury that those who can get it pretty much do as soon as they have the opportunity. That's why China and India and their 2.7 billion residents -- about a third of the global population -- are such desirable markets for water heater maker A.O. Smith.
Smith has grown revenues by 21% a year in China over the past decade. China should remain a strong market, too, as the company bolsters its water heater business by expanding into air and water purifiers. India is a newer push, which means growth there could be substantial as the company employs similar tactics to those used successfully in China. Notably, the percentage of the Indian population that A.O. Smith is targeting is set to expand from roughly 10% of the population to around 25% over the next decade or so, suggesting material growth potential.
Foreign growth has helped to increase Smith's top line by 10.5% annually since 2010, with the bottom line expanding by an annualized 21%. Investors have rewarded the stock by pushing it up a massive 1,000% over the past decade. To be fair that, lags behind Netflix's stock gains, but A. O. Smith's P/E is a relatively modest 33, compared with Netflix's massive P/E of 267. With solid prospects for continued growth in emerging markets, there's every reason to believe that this boring water heater market can continue to deliver solid operating results that investors reward with higher stock prices for many years to come.
The bottom line
There's no way to guarantee that these three companies will beat the market or Netflix. But between Wix's recent momentum and massive addressable market, the virtuous cycle created by Amazon's cash flow and disruptive nature, and A.O. Smith's enviable runway for growth in Asia, we think they're poised to do exactly that.
