Meme stocks -- investments that have gone viral among retail investors on social media, embodied by GameStop -- are all the rage right now, and are showing no signs of going away anytime soon. That's totally fine, they've made some investors lots of money. But bear in mind many of the businesses that have been swept by meme stock euphoria aren't a sure bet for the long term. On the contrary, many of them are on shaky footing and are more of a short-term trade than they are an investment for the long haul.
To that end, three companies that do look like long-term buys that could generate massive returns over time are Teladoc Health (TDOC -1.63%), Coupa Software (COUP), and Nutanix (NTNX -1.37%). Here's why these Fool.com contributors think so.
Healthcare delivery is still ripe for disruption
Nicholas Rossolillo (Teladoc Health): Let's face it, taking time out of our busy schedules to go to the doctor's office is no fun -- and so 2019. In the wake of the pandemic, consulting with a healthcare professional via phone or video conference has become commonplace. Teladoc Health built itself into the leader on this front ahead of the quick and massive migration to telemedicine last year, and the stock exploded some 140% higher in 2020 as a result.
2021 has been a different story though. After getting off to a hot start, Teladoc is currently down 18% so far this year. There's mounting worry that this is now a commoditized offering, and it's never a warm-and-fuzzy feeling when Amazon announces its launching its own competing service. But Amazon's entrance into the healthcare technology space is more of a validation that the multi-trillion dollar-a-year healthcare industry (in the U.S. alone) is ripe for disruption, not a threat to Teladoc. There's plenty of room for multiple companies to thrive here.
Plus, Teladoc can't really be pegged as just a facilitator of video conferencing. It has a wide array of in-house healthcare professionals and specialists, and jump started a new segment aimed at remote health monitoring, coaching, and health data with the purchase of Livongo Health last autumn. Teladoc is the leader in the virtual care space for a reason, and this is no stagnant company resting on its laurels. There's no shortage of ways global healthcare delivery could be improved upon, and I expect Teladoc will continue to develop new capabilities and further disrupt the massive global health and wellness feeding trough.
In the grand scheme of things, this is still a small company with an enterprise value of just $26 billion. Management expects revenue to grow as much as 85% for full-year 2021 to $2.02 billion. For what it's worth, that means shares trade for just 13 times full-year expected sales. If Teladoc's growth story (it's been a double-digit percentage grower since its IPO in 2015) remains intact, this is a steal and potentially game-changing investment today. I, for one, remain a buyer.
Image source: Getty Images.
The perfect solution for trying times
Anders Bylund (Coupa Software): Business software specialist Coupa Software only does one thing, but it does it very well. The company provides expense management tools for companies of every size. Coupa's software manages everything from procurement and invoicing to contracts and sourcing pipelines. Based on the spending patterns flowing through the system, Coupa then applies machine learning and artificial intelligence to help you do everything better.
All of this is done as transparently as possible. One of Coupa's many rallying cries is that "the best user interface is no user interface." Your company's workers and executives shouldn't have to think about how to analyze and improve the business spending process. In Coupa's world, it all happens automatically when you run your business.
This combination of powerful expense controls and easy-to-use tools makes Coupa's software particularly useful in times of disruption and high economic pressure. The coronavirus pandemic is a great example of this perfect storm. Coupa's revenue growth accelerated over the last four quarters and the company is generating more cash profits than ever.
At the same time, the stock was caught in the spring market's broad retreat from growth stocks. Shares are trading 33% below the all-time highs that were set in February. This isn't a cheap stock by any reasonable measure but you get what you pay for. Coupa has sown the seeds for fantastic business growth and should continue to deliver year-over-year top-line jumps between 30% and 40% for the foreseeable future. You can't say that about the headline-grabbing meme stocks, whose soaring market caps rarely depend on actual business results.
Get ready for a hyper-converged future
Billy Duberstein (Nutanix): If you like cloud stocks, you should love hyper-converged infrastructure (HCI) stocks too, and the leading HCI player in this growing market is Nutanix.
Hyper-converged infrastructure (HCI) is a term for the software operating system that allows corporations to run their workloads and applications across all types of data infrastructure -- public, private, or on-premises data centers -- from a single, simple plane of glass. In a world in which most large companies use a mix of clouds, on-premise data centers, or managed private clouds, you can see how managing that all from a single interface would be much simpler for employees, who now won't have to learn how to run multiple types of applications and infrastructure.
Unsurprisingly, the HCI market is forecast to grow strongly, from $21 billion in 2020 to $30 billion by 2025. Not only that, but Nutanix has also developed adjacent products, such as database-as-a-service, unified storage, and disaster-recovery-as-a-service, which could double Nutanix's addressable market to $61 billion by 2025, up from $39 billion in 2020.
Like other software companies have done before, Nutanix is transitioning from a one-time license model to a recurring subscription sales model. That lowers Nutanix's headline revenue, as larger one-time licenses are replaced by lower but longer-term subscription contracts. And that masks what should be stellar growth over the next five years.
At its recent investor day, new CEO Rajiv Ramaswami forecasted annual contract value growing at a 25% compound annual growth rate (CAGR) over the next five years. Ramaswami also sees Nutanix's current cash burn flipping to free cash flow positive by the end of this year or 2022, on the way to between $300 million and $500 million in free cash flow by 2025. And given the long-term hybrid cloud tailwinds and the fact that Nutanix should still be growing at a 20%-plus rate in 2025, that likely won't be the end of the growth story.
