Investors have different time horizons. Some are focused on squeezing out small gains every day. Others simply buy and hold shares to let the businesses do the work. Although research shows that trying to time the market is usually a bad idea, it can be hard to hold shares of a company through the inevitable ups and downs of the stock market. That's why choosing companies with good long-term prospects is so important.
Align Technology (ALGN -3.25%), Lululemon Athletica (LULU -0.41%), and EPAM Systems (EPAM -1.68%) meet that criteria, and then some. They each have unquestioned momentum in their businesses and long runways for growth ahead. Over time, they should be able to double their size with relative ease. For shareholders, you just need to wait.
Image source: Getty Images.
1. Align Technology
Align is known for its Invisalign clear teeth aligners. It's an alternative to traditional metal braces that benefits both patients and orthodontists. The treatment takes less time and is aesthetically preferred. That leads to happier patients and higher throughput for providers. What many may not realize is that a better outcome is the result of the company's investments in both training and technology. Align's offering does cost more, but it's been a winning formula for two decades.
The company did have one awful quarter during the pandemic -- the second quarter it just lapped. But comparing recent results to 2019 shows just how much momentum the business has. Both revenue and operating profit are up substantially.
| Metric | First Six Months of 2021 | First Six Months of 2019 | Change |
|---|---|---|---|
| Revenue | $1.44 billion | $1.15 billion | 25.9% |
| Operating profit | $494.4 million | $264.2 million | 87.1% |
| Operating margin | 34.4% | 23% | 1,140 bps |
Data source: Align Technology. bps = basis points.
Management projects this year's revenue at $3.9 billion at the midpoint, up 58% over last year. That growth is no surprise. Even before the pandemic, annual revenue had more than tripled in the previous five years. There is plenty more where that came from. Management believes it can reach 500 million customers globally. In April, the company celebrated its 10 millionth Invisalign customer. It's the kind of opportunity that should steady the hands of any shareholder when volatility strikes.
2. Lululemon
Lululemon was once thought of as a niche Canadian company that sold expensive yoga pants to upper middle class women. Many investors may not realize just how far the company has come. It now has a thriving men's business and is quickly making inroads into casual wear thanks to remote work. That's demonstrated by the category growth over the past two years.
| Category | Q1 2021 Revenue | Q1 2019 Revenue | Change |
|---|---|---|---|
| Women's product | $849.7 million | $563.0 million | 51% |
| Men's product | $274.3 million | $170.2 million | 61% |
| Other | $102.5 million | $49.1 million | 109% |
| Total | $1.23 billion | $782.3 million | 57% |
Data source: Lululemon.
It's also a leader in e-commerce. While most CEOs talk about the internet as a sales channel, few have executed like Lululemon. Fueled by the pandemic, direct-to-consumer sales made up 52% of revenue in the fiscal year ending Jan. 31, 2021. Despite the reopening, it was still 44% in the first quarter ending in May. That's up from 29% in 2019.
Meanwhile, the company continues adding stores in coveted shopping areas. There were 523 company-operated stores at the beginning of May, up from 489 last year. That store count growth happened during a pandemic. Clearly there is plenty of demand for the products. As Lululemon transitions into mainstream clothing -- a market worth $368 billion in the U.S. alone -- the limits of growth are still far off beyond the horizon. That's what shareholders should focus on if the market turns sour.
3. EPAM Systems
Few investors have heard of EPAM Systems, a provider of software development and engineering services co-founded by Arkadiy Dobkin in 1993. The same can't be said for corporate executives looking to stay competitive in an ever-changing digital world. The company boasts relationships with five of the 10 largest investment banks, eight of the 10 largest pharmaceutical companies, all four of the top broadcast networks, and four of the top five health plans in the U.S. All told, EPAM serves hundreds of Fortune 500 clients across the globe.
It also has partnerships with companies including Amazon, Alphabet's Google, Adobe, and Microsoft. It has posted consistent, profitable growth since at least 2007 (the earliest data available). Both metrics have been impressive. Prior to the pandemic, revenue had grown at least 25% each year for the past decade. Free cash flow is more volatile, but it has compounded at 25% annually over that span.
It might seem that such growth would be hard to sustain, but management is forecasting at least 37% revenue growth this year. That means the company could top $1 billion in sales for the first time in its history. With a market cap of only $35 billion -- about one-sixth of rival Accenture -- there could be another phenomenal decade in store for shareholders.
