Winners tend to keep winning in the stock market. The sustainable competitive advantages that powered a company's past success will often help keep it successful.
The best place to fish for stocks to buy is among stocks that are current winners. Three top-performing stocks that have a great shot at remaining outperformers over the long term are Pinterest, Innovative Industrial Properties, and Peloton Interactive.
Image source: Getty Images.
Three top growth stocks: Overview
|
Company |
Market Cap |
Revenue Growth Most Recent Quarter YOY |
Forward P/E |
1-Year Return |
3-Year Return |
|---|---|---|---|---|---|
| Pinterest (PINS 1.11%) | $43.6 billion | 76% |
83 | 350% | N/A* |
| Innovative Industrial Properties (IIPR 2.19%) | $4.2 billion | 110% |
37 | 129% |
632% |
| Peloton (PTON +9.46%) | $31.6 billion | 128% |
114 | 287% | N/A** |
|
S&P 500 |
--- | -- | -- | 53.3% | 58.7% |
Data source: Yahoo! Finance and YCharts. YOY = year over year.
P/E = price-to-earnings ratio. N/A = not applicable. *Pinterest went public in
April 2019. **Peloton went public in September 2019. Data as of March 30, 2021.
Pinterest is an image-sharing platform that enables users to discover, save ("pin"), and share images and videos of products and projects in various categories, such as home, food, and health. The site is constantly rolling out new features to increase its value to users, including making it easier for them to shop for items they come across.
Like others in the broad social media category, Pinterest makes its money from advertising. As I wrote in the fall of 2019 and feel even more strongly about now, Pinterest's "platform is product-centric -- in a way not unlike Amazon's -- so it's a particularly good alignment with an advertising business model."
In Q4 2020, Pinterest's revenue soared 76% year over year to $705.6 million. Growth was driven by a 37% year-over-year surge in the number of monthly active users (MAUs) and a 29% increase in global average revenue per user (ARPU). Adjusted earnings per share (EPS) skyrocketed 258%. Results for both the top and bottom lines greatly surpassed Wall Street's expectations.
Management expects robust revenue growth to continue in the first quarter of 2021. It guided for Q1 revenue to grow in the low-70% range year over year.
Pinterest's 2020 results have gotten a tailwind from the COVID-19 pandemic, which has resulted in people spending more time at home. Undoubtedly, this dynamic has increased social media use. That said, given how much users seem to love Pinterest, it seems likely that many of them will continue their current usage in a post-pandemic world.
Image source: Getty Images.
Innovative Industrial Properties
Innovative Industrial Properties (IIP) is a real estate investment trust (REIT) focused on industrial properties used for growing and processing cannabis, though it also buys dispensaries. As of March 30, it owned 68 fully leased properties in 18 U.S. states where marijuana is legal for medical use.
IIP stock is the least risky among the pure-play cannabis stocks, in my view. The company is profitable and also has significantly raised its dividend each year. Shares are currently yielding about 3%. Nearly all other pure-play companies in the marijuana sector are bleeding cash.
As long as IIP remains successful, investors can count on it paying a dividend. REITs must pay out at least 90% of their income as dividends to shareholders in return for their special tax treatment.
In 2020, IIP's revenue soared 162% year over year to nearly $117 million, EPS share surged 61%, and adjusted funds from operations (AFFO) per share jumped 53%. AFFO is a key profitability metric for REITs and drives dividend changes.
I just called Innovative Industrial Properties one of the two best cannabis stocks to buy now.
Image source: Peloton.
Peloton
Peloton is the leading maker of connected home-exercise equipment, specifically bikes and treadmills. It's currently only in the consumer market, but its acquisition of Precor -- announced in December and expected to close early this year -- will enable it to enter the commercial market.
Owning Precor will also provide a second key benefit to Peloton -- it'll help it more quickly build its domestic manufacturing capabilities. The lack of such capabilities has resulted in Peloton having ongoing supply-chain issues, resulting in delivery windows that are longer than ideal.
In early February, Peloton reported powerful results for its fiscal second quarter of 2021, which ended on Dec. 31, 2020. Its revenue soared 128% year over year to $1.065 billion, and EPS came in at $0.18, versus a loss of $0.20 per share in the year-ago period. Both results beat Wall Street's expectations.
Moreover, management raised its outlook for full-year fiscal 2021. It expects revenue to grow at least 126% year over year.
Peloton's business has gotten a big boost from the pandemic. Granted, the company's sales growth is likely to slow once the global health crisis is over, as some people will return to working out at gyms and forego buying home exercise machines. But it still has considerable long-term growth potential. It's only barely penetrated the consumer exercise market and hasn't begun to penetrate the commercial market.
Potentially high reward, but higher risk, too
Shares of rapidly growing companies usually sport high valuations, as is the case with the three stocks covered here, particularly Pinterest and Peloton. These types of stocks tend to be quite volatile and aren't a good fit for more conservative investors.
