Industrial software company PTC (PTC -0.95%), OLED materials and technology Universal Display (OLED -1.15%), and positioning technology company Trimble (TRMB -0.14%) are all growth stocks set to significantly grow earnings in the coming years. That's usually great news for long-term investors looking to build wealth over the decades. Let's examine why all three might attract blue sky-orientated investors.
The industrial software company plays on the increasing digitization of the industrial economy. This is sometimes referred to as the fourth industrial revolution and is characterized by connecting physical assets to the digital world to improve asset performance. For example, consider a factory that has been "digitally twinned" so its owners can model and simulate performance digitally and then use that information to predict when equipment needs servicing or improve performance.
PTC's internet of things (IoT) solutions help companies connect assets to the digital world, while its augmented reality (AR) solutions allow technicians to service equipment without even being physically present. Moreover, using AR, personnel can use digital information to better service equipment.
PTC lumps IoT and AR solutions together as its "growth products" and expects 30%-plus annual growth from them over the medium term.
Meanwhile, management expects PTC's traditional core solutions, computer-aided design (CAD), and product lifecycle management (PLM) software to grow at a high-single-digit to low-double-digit annual growth rate over the medium term.
With the pandemic increasing awareness of the need to automate production and helping to accelerate digital adoption, PTC will likely continue to grow at a healthy clip. Management's base-case scenario calls for free cash flow of $850 million by 2024, a figure equivalent to 5.5% of the company's current market cap. If PTC can get there, then the stock will prove to be an excellent value right now.
The investment case for Trimble rests on the growing need for positioning technology across a range of industries. In a nutshell, Trimble provides hardware and software that helps users needing pinpoint accuracy in their working activity. Its traditional end markets are geospatial (surveying and mapping), but the real growth potential comes from expanding in markets such as construction, agriculture, and transportation.
Trimble's solutions are likely to be part of what management calls an "integrated work process." In other words, Trimble's technology will be an integral part of a customer's daily activity rather than an add-on or temporary solution.
Examples include farmers using high-precision positioning technology to accurately prepare, seed, nurture, and harvest fields using guided machinery. Similarly, engineering contractors can construct with pinpoint accuracy quickly, and trucking fleets can generate real-time data, which can be used to improve fleet performance.
Moreover, as Trimble becomes a more integrated part of its customers' daily activity, the company is likely to grow its software and recurring revenue streams more than its hardware. Given that the former comes with higher profit margins, Trimble has a margin expansion opportunity.
Trimble's integration into customers' work processes is likely to increase over the years in line with the increased adoption of advanced analytics in everyday activity. Again, think of how farmers are increasingly using smart farming technology to improve farm profitability.
Wall Street analysts have Trimble growing revenue at 10% and 8% over the next two years, and the company has excellent potential to carry on growing for many years to come.
The OLED materials and technology owner operates in some volatile markets -- after all, it's tough to predict its customers' capital spending plans, and consumer electronics companies tend to spend based on the development cycle of new products.
That said, the trend toward OLED technology in smartphones, TVs, and high-end laptops remains positive. Moreover, lowering OLED manufacturing costs will bring more OLED products into the sphere of affordability for mainstream products, therefore increasing overall demand.
Meanwhile, the company continues to research and develop blue phosphorescent emitters -- a technology that promises to improve display efficiency significantly -- and move toward eventual commercialization.
An indication of the growth potential at Universal Display comes from the agreement with leading paint and coatings company PPG Industries to develop a new manufacturing site in Ireland. According to PPG, the plan is to "double the production capacity and diversify the manufacturing base for UDC's phosphorescent emitters to meet growing organic light-emitting diode (OLED) market demand and evolving industry requirements." The future looks bright for Universal Display.