Growth stocks are like catnip to most investors. After all, the prospect of generating above-average portfolio returns in a significantly shorter period than the typical stock is a tempting prospect. But not all growth stocks are created equal. With some investments, the ratio of risk to reward just isn't worth it.
If you're a long-term investor itching to add quality growth stocks to your basket of buys without introducing too much risk, the following two companies could very well be a match made in heaven.
When it comes to buying marijuana stocks, the potential long-term returns are often overshadowed by the immediate volatility of this quasi-legal industry. Many pot stocks struggle to achieve and maintain profitability. The sector has also experienced pandemic-related headwinds with intermittent dispensary closures. But some pot stocks have managed to flourish over the past year, and GrowGeneration (GRWG -4.32%) is one.
The company has a significant edge over better-known pot stocks because it doesn't rely on growing and selling marijuana. GrowGeneration sells hydroponic equipment, soil, and other gardening supplies that enable growers to cultivate pot plants. GrowGeneration has 52 U.S. retail and distribution locations, including in California, Colorado, and Arizona where both recreational and medical marijuana are legal.
The company is rapidly expanding its operations nationwide. In March alone, it purchased a new hydroponic superstore in Orange County, California, acquired one of New England's largest hydroponic retailers, signed leases for two new hydroponic garden centers in Los Angeles County, and acquired a purchasing and logistics platform called Agron.io.
GrowGeneration's profits are also growing like a weed. In 2020, the company grew its revenues 143% year over year and increased its gross profits by 132%. GrowGeneration also boosted its adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) by a whopping 264% from 2019. Same-store sales spiked 63% last year, and e-commerce sales grew 123%.
Shares of GrowGeneration have catapulted by 1,100% over the past 12 months, swelling the company's market cap to nearly $2.4 billion. GrowGeneration is poised to keep reaping remarkable profits from steady demand for quality hydroponic and gardening supplies and the wave of new legal marijuana markets opening. It's no feat of the imagination to consider that the stock's price could rise even higher over the next few years.
The e-commerce world is particularly lucrative for investors, and this reality has been increasingly apparent in the pandemic landscape. With so many people stuck at home, online shopping has risen to all-time highs. Many top e-commerce stocks have seen their shares and revenues soar in step.
Etsy (ETSY -1.80%) is been one of the most prominent examples of the changing face of retail and the remarkable resilience of e-commerce in an otherwise volatile economic environment. Etsy was an excellent growth stock long before coronavirus entered the picture. In 2017, 2018, and 2019, the company reported respective year-over-year revenue increases of 21%, 37%, and 36%.
But 2020 was another record-setting year for Etsy. The company reported 107% gross merchandise sales growth while total revenue, marketplace revenue, and services revenue rose by 111%, 120%, and 88%, respectively. Etsy's bottom-line growth was also notable, with net income rising 264% from 2019. Last year, Etsy recorded 62% more active sellers on its platform than in 2019, while its active buyer count rose 77%.
Investors who bought shares of Etsy before the pandemic have clocked significant growth. Etsy shares are up 420% from just 12 months ago. But management isn't expecting growth to subside in 2021. The company is already forecasting that its gross merchandise sales will increase between 115% and 125% in the first quarter and that its revenues will represent as much as 135% growth from the year-ago period.
If you've been contemplating an investment in Etsy, there's no better time than the present to scoop up this unstoppable growth stock.