Over the ultra-long term, arguably no investment vehicle has created more millionaires than the stock market. Even accounting for the dot-com bubble bursting, the Great Recession, and the coronavirus swoon during the first quarter of 2020, the S&P 500 has averaged an annual return of 8.65% over the past 40 years -- and that's not including dividends.
Most investing millionaires have made their fortunes by putting their money to work in brand-name businesses and industry leaders. But before the Amazon's of the world became dominant players, they were, at one time, off-the-radar growth stocks.
Right now, investors have the opportunity to scoop up three of these under-the-radar growth stocks, all of which may have the share price appreciation potential to make investors millionaires -- that is, if they're patient enough.
For years, we've been hearing about how marijuana stocks are the greatest thing since sliced bread. But as is often the case with next-big-thing investments, investors' expectations exceed reality. In the second quarter of 2019, the cannabis bubble burst.
But there's good news on the cannabis front, and it has nothing to do with Democrats potentially changing the scheduling of pot at the federal level in the United States. After many years, we're beginning to see the North American pot industry mature. With that maturity, one off-the-radar company has emerged as a clear-cut winner: Cresco Labs (OTC:CRLBF).
What makes Cresco Labs special is threefold.
To begin with, the company has a relatively small but nonetheless burgeoning retail presence in a number of core markets. It ended 2020 with 20 operational dispensaries, 10 of which were located in Illinois. The interesting thing about the Land of Lincoln is that it's a limited license state. Since it's limiting the number of retail licenses that it'll issue, the 10 locations Cresco has in Illinois will give it a really good chance to capture significant share in a state that's already topped $1 billion in annual weed sales.
Secondly, Cresco Labs is a wholesale cannabis giant. When Cresco acquired Origin House in January 2020, it came into possession of Origin House's coveted cannabis distribution license in California (the largest pot market in the world by annual sales). This allowed Cresco to place pot products in more than 575 dispensaries throughout the Golden State. As red tape is tackled in California, Cresco's wholesale opportunity should expand to new dispensaries throughout the state.
And third, Cresco can be scooped up right now at a multiple of about 3 times Wall Street's consensus sales for 2022. That compares to other profitable and soon-to-be profitable multistate operators that are valued around a multiple of 5 times sales for 2022. In other words, Cresco can show patient investors some serious green.
According to the company, an aggregate of $146.1 billion is doled out annually on insurance industry distribution and ad spending in the United States. Digital spending, which is where EverQuote makes its home, accounts for $5.6 billion of this total pie. However, total market spend is only expected to increase by about 3% annually through 2024, whereas digital spending should grow by more than five times that rate (16%) each year.
The beauty of the EverQuote operating model is that it's a win-win for everyone. It's convenient for shoppers who want clear and quick insurance-price comparisons, and it provides insurance companies with motivated shoppers. EverQuote notes that 20% of the customers who request a quote end up purchasing an insurance policy through its marketplace.
Although the company generates the bulk of its revenue from auto insurers, it's been transitioning to new verticals in recent years, including health, home, renters, and life insurance. These new insurance verticals are growing at a much faster pace than the company's traditional auto insurance marketplace. Whereas compound annual sales growth for all segments between 2014 and 2020 is 33%, revenue from non-auto verticals grew by an average of 127% annually between 2016 and 2019.
What we're witnessing is a steady shift to online insurance advertising, and EverQuote looks to be the prime beneficiary of that move. If it continues to gobble up digital ad spending market share, the sky's the limit.
A final off-the-radar stock that could make investors millionaires is millennial-focused modular furniture designer and retailer Lovesac (NASDAQ:LOVE).
Given the existing state of the economy and the unknowns surrounding the pandemic, you wouldn't think that a furniture company is the place to put your money to work. But Lovesac has continually proved doubters wrong, with the company logging nearly 41% net sales growth in fiscal 2020 and a gross margin of 50%.
There are a number of factors that make Lovesac so special and an absolute favorite among millennials. In particular, Lovesac offers choice. Its sactionals, which represent close to 81% of total sales, can be rearranged in a variety of ways to accommodate any living space. What's more, there are more than 250 washable sactional covers that consumers can buy. And as the icing on the cake, the yarn used in these covers is made entirely from recycled plastic water bottles. Choice, convenience, and eco-friendly materials has won over the millennial consumer.
Just as important is Lovesac's ability to adapt to prevailing market conditions. During the pandemic, most physical showrooms were forced to close or saw significantly reduced foot traffic. That's why most furniture stocks were clobbered. However, Lovesac already had a relatively light inventory system in place that allowed it to shift its marketing efforts online. In fiscal 2021, approximately 53% of its sales have originated online, which is up from 23% less than a year ago. Having this balanced omnichannel presence has been a boon to the company's margins.
With Lovesac still in the nascent phase of its marketing campaign and the company launching at least one major product each fall, it wouldn't be surprising to see it grow into a true disruptive force in the stodgy furniture space.