For more than a century, stocks have been the smartest long-term investment vehicle. While the stock market may not outperform bonds, gold, or housing every year, the average annual return of equities far outpaces other investment tools.
But over the past couple of years, cryptocurrencies have given stocks a run for their money. In particular, retail investors have latched onto the so-called "people's currency," Dogecoin (DOGE +0.75%), which at its peak in May returned more than 27,000% in a six-month stretch. That's a bigger return than investors would have netted from holding the S&P 500 since 1965.
Image source: Getty Images.
Dogecoin lacks staying power
There are a variety of reasons the retail community has rallied behind Dogecoin. For one, it's well-liked by billionaires Elon Musk and Mark Cuban. Musk, in particular, has shown the ability to move crypto markets with tweets and memes. Investors also believe they're getting in near the ground floor before we witness widespread retail adoption.
The problem with Dogecoin, as I've previously stated, is that it completely lacks competitive advantages. Without anything tangible that would drive adoption, there's no reason to believe Dogecoin will ever be anything more than a fad.
For example, there's nothing unique about Dogecoin's blockchain that would inspire long-term confidence. While its transaction fees are lower than Bitcoin, they're also substantially higher than Dash, Stellar, XRP, Cardano, Nano, Bitcoin Cash, and a really long list of other popular cryptocurrencies. Dogecoin also fails to validate and settle transactions faster than many of its peers.
The argument for broad-based adoption takes a hit if you take a closer look at Dogecoin's average daily transactions. Over the past two months, between 17,000 and 30,000 Dogecoin transactions are being completed daily. That's down from an average of 25,000 to 40,000 daily transactions in 2019. Comparatively, payment processing giants Visa and Mastercard handled a combined 700 million daily transactions in 2018.
And lastly, Dogecoin lacks utility. It's taken eight years for around 1,400 most-obscure online businesses to accept Dogecoin as a form of payment. Considering there are hundreds of millions of businesses worldwide, this isn't exactly a vote of confidence for the people's currency.
This trio can handily outperform the people's currency
With Dogecoin lacking anything that would resemble staying power, it's my belief that stocks will handily outperform the people's currency over the next five years. Specifically, I'll be looking for the following three growth stocks to have run circles around Dogecoin by the end of 2026.
Image source: Square.
Square
If you absolutely must have exposure to crypto, my suggestion would be to abandon Dogecoin and buy fintech stock Square (SQ 3.25%).
For more than a decade, the seller ecosystem has been Square's foundational asset. This is the operating segment that provides point-of-sale devices, loans, and analytics to merchants to help them growth their business. Annual gross payment volume (GPV) traversing Square's seller ecosystem grew by an average of 49% a year between 2012 and 2019, and GPV will probably top $140 billion in 2021.
Take note that the seller ecosystem isn't just for small merchants any longer. The company's second-quarter operating results showed that 65% of GPV originated from so-called "larger" businesses, with at least $125,000 in annualized GPV. That's up 10 percentage points from the comparable period two years ago. Since the seller ecosystem is a fee-driven segment, bigger merchants mean juicier gross profits.
But what crypto-loving retail investors will probably appreciate more is Square's rapidly growing peer-to-peer payments platform Cash App. Between the end of 2017 and the end of 2020, Cash App's monthly active user count more than quintupled to 36 million. What's more, over the past two years, gross profit per Cash App user is up about 150% to $55. Comparatively, it's costing Square only around $5 to attract each new Cash App user.
Cash App also expands Square's revenue channels. In addition to merchant fees, the company is generating sales from transfers, investments, and Bitcoin exchange.
Image source: Getty Images.
Ping Identity
Another company with the ability to run circles around Dogecoin over the next five years is cybersecurity stock Ping Identity (PING +0.00%).
The beauty of cybersecurity is that it's transformed into a basic need service. The coronavirus pandemic accelerated the push of enterprise and consumer data into the cloud, which means third-party providers like Ping Identity are being relied on to a greater extent to protect vital information.
Whereas most cybersecurity stocks are valued at nosebleed sales multiples, Ping can be scooped up for less than 7 times Wall Street's forecasted sales for the current year. That's because some of the company's clients chose short-term subscriptions last year, when the pandemic disrupted economic activity.
However, with Ping now focused on its considerably higher-margin software-as-a-service subscription segment, annual recurring revenue (ARR) continues to climb. During the second quarter, ARR climbed 19% from the prior-year period, with the company's net retention rate of 111% demonstrating that existing clients spent 11% more than the prior-year period. As the revenue recognition timeline of these higher-margin subscriptions becomes more evenly distributed, we're liable to see Ping's sales growth consistently stick in the mid-teens, if not higher.
Image source: Pinterest.
A third stock that can confidently lap Dogecoin by the end of 2026 is social media up-and-comer Pinterest (PINS 5.88%).
In recent weeks, Pinterest has been clobbered by the monthly active user (MAU) sequential decline reported in the second quarter. As the U.S. and global economy attempt a return to some level of normalcy, it would appear that some people chose to spend less time engaging on social media sites like Pinterest. But this single quarterly MAU decline doesn't tell the full story. If investors back out multiple years, they'd see a company growing its user base well within its historic range.
What's arguably far more important is that Pinterest continues to see its average revenue per user (ARPU) soar, even as its MAUs retrace a bit. Global ARPU was up 89% in the June-ended quarter, with 163% ARPU growth from international users. This effectively means that advertisers (i.e. merchants) are finding incredible value in Pinterest's large user base, and they're willing to pay big bucks to get their message in front of these users. In terms of ARPU, Pinterest is still in the very early innings of monetizing its platform.
And let's not forget that Pinterest's platform offers a highly targeted audience. These are people willingly posting about the things, places, and services that interest them. This makes it easy for merchants to effectively target their ad dollars, all while Pinterest acts as an e-commerce middleman.
