Wouldn't it be great if you could identify -- beforehand -- a stock that would go on to soar and create life-changing long-term returns? I'm thinking of something on the order of Starbucks' massive rally since its 1992 IPO or the incredible value creation that Netflix has achieved since its 2007 entry into the streaming video market.
Of course, we can't see the future. And even the most visionary investor would have failed to predict the many strategic wins and competitive stumbles that went into those two epic business's runs.
Still, monster stock rallies tend to be powered by a few important ingredients, including a long-running business trend like the shift toward premium coffee. They also require a company whose brand resonates with customers in a way that peers just can't match.
With that model in mind, here are a few reasons iRobot (IRBT 0.69%) and National Beverage (FIZZ -1.81%) might be in the early stages of huge long-term runs.
Beating back the competition
Wall Street has a habit of concluding that iRobot is about to lose its dominant market position due to an influx of cheaper competition. But the maker of robotic cleaning devices keeps proving the skeptics wrong.
The most recent surprise came as iRobot announced a 24% sales spike in the second quarter, thanks to robust demand for its Roomba vacuums. The newly launched Braava mopping line is off to a strong early start, too. Better yet, the company saw gross profit margin improve to 52% of sales from 49% a year ago, even though many more competitors entered the market during that period.
Robotic vacuum cleaners are still a relatively small niche, but the company believes its installed base could grow to as many as 86 million homes just in the U.S., up from around 15 million today. Meanwhile, iRobot is allocating a significant portion of its research and development budget toward new product lines, like mopping, that could complement or eventually surpass its core vacuum base.
It's anyone's guess just how rapidly robotic cleaning devices will move into the mainstream. But if it keeps its innovative winning streak intact, iRobot should be able to defend a significant chunk of the global market share as the industry matures.
Keeping that sparkle
National Beverage's $1 billion of annual revenue is just a drop in the bucket compared to the tens of billions that Coca-Cola and PepsiCo ring up each year. But the fizzy-water specialist is enjoying growth rates that these well-funded and better capitalized giants can only dream of. Sales volumes rose 20% last year to mark an acceleration over the prior year's uptick.
This boost came with rising prices, too. And it occurred even though the industry leaders were doing everything they could to elbow deeper into the growing market for naturally flavored beverages, particularly sparkling water.
National Beverage can thank the LaCroix franchise for most of its success over the last few years. For its growth to kick into another gear, though, it will need to demonstrate that it can develop and/or acquire a few other attractive beverage brands to rival that franchise in popularity. The company also needs to extend itself beyond just the U.S. market.
Early indications from its entry into Canada suggest the LaCroix brand could travel well, and that makes sense given the healthy global demand for sparkling water. Now it's up to National Beverage to extend that positive momentum deeper into the Canadian market and then off into much bigger territories and sales channels over the next few years.
Where they go from here
Both National Beverage and iRobot would need to notch many competitive wins to create substantial long-term returns for investors from here. These require strong execution on product development and marketing, along with a continued stretch of favorable industry dynamics. All that, plus some luck on their side, might allow them to lead their industry niches into the larger global stage.