Imagine buying Amazon or Netflix before they reshaped their respective industries. Over the last decade alone, Amazon stock has climbed roughly 1,700% and Netflix has risen nearly 1,900%. If you bought either of these companies even earlier, your returns would have been even more impressive.
Identifying young companies that operate at the intersection of powerful trends can be a path to incredible stock returns. Read on for a look at two companies that are spearheading growth in rapidly expanding markets and have shares priced well below $100. Perhaps one or both will be worthy additions to your investment portfolio.
1. Upwork: Benefit from momentum in the gig economy
Upwork (UPWK 0.79%) provides a technology platform that connects freelance workers with clients looking to hire for various jobs. With the work-from-home trend booming and potentially accelerating a shift toward this new gig economy approach to many projects, the company could go on to be a huge winner.
The upsides to this approach are numerous. Companies can hire freelancers on a contract basis and avoid health insurance, payroll taxes, and other hefty costs. Hiring contractors also creates the opportunity to save on office rental expenses and other costs. Growth for the cost of employee benefits has also generally outpaced increases for wages.
With the increased breadth and versatility of talent available on a freelance or contractor basis, there are huge incentives for companies to satisfy some of their work needs through Upwork's platform. People are turning to the platform for projects big and small. The company also offers payment processing services that can be used by larger enterprises to simplify freelance and contractor-based projects.
Record new-customer additions helped Upwork boost its sales 24% year over year in the third quarter, and it looks like the company's growth story is just getting started. Strong gross margins (roughly 73% last quarter) also point to big earnings potential as the company continues to expand the reach of its platform and sees sales growth exceed its spending to acquire new large customers and improve the platform.
Upwork stock currently trades in the range of $36 a share. Valued at roughly $4.5 billion and trading at 12 times this year's expected sales, Upwork has plenty of room for growth and is priced at sales multiples that still look appealing in the context of more richly valued cloud software companies.
2. Huya: Capitalize on growth for video games and esports
Video games boast levels of engagement that trounce nearly every other form of entertainment, and momentum for the industry has been so strong that there's now even a substantial market for videos of other people playing games. Huya (HUYA -3.64%) is a Chinese company that provides a platform that allows users to broadcast and watch gameplay footage and commentary, and the business looks primed for impressive growth.
After completing a planned merger with core competitor DouYu in the first half of 2021, the company's position should be even stronger. Huya already is far and away the leader in gaming-content streaming and is posting strong business momentum. It should benefit from rising demand in diverse geographic markets. In addition to being a category leader in China's fast-growing esports and gaming-video market, the company is also rapidly growing its audience across Southeast Asia.
The company managed to grow sales 24% year over year last quarter, and its adjusted net income climbed 75% compared to the prior-year period. Joining forces with DouYu should help capture more of the overall growth in gaming-video content and cut down on internal operating costs and the amount that it needs to share with content creators on its platform.
Growth for the global games industry is still just getting started, and the same holds true for gaming-video content. Huya looks cheaply valued trading at roughly $19 per share and 24 times this year's expected earnings, and it stands out as a growth candidate that has lots of room for expansion over the long term.
These stocks could power your portfolio through the next decade
Upwork and Huya stand out as two companies that are on track to benefit from powerful industry trends, and they have the potential to deliver huge gains. These are relatively young companies operating in nascent markets, so it's important to proceed with the understanding that there could be unexpected twists and turns along the way. But investors who take a long-term approach could be richly rewarded.