Doubling your money can be an enticing goal. However, it's not an easy thing to accomplish. If you want to double your money in five years, you will need to earn a compound annual rate of roughly 15%.
Putting your money in the stock market is a good way to achieve those kinds of returns. Buying stocks gives you an ownership interest in the companies of your choosing. When those companies make profits, you will get your share through dividends or a higher stock price -- or both. The better the business performs, the better your return will be.
Let's look at two stocks that could double your money in five years.
Image source: Getty Images.
Airbnb
Online accommodation site Airbnb (ABNB 1.09%) is pioneering a new way for folks to travel. Whereas before you were limited to hotels, Airbnb gives you a different option. How does it do this? By encouraging people to make their spare rooms, garages, vacation homes, and trailers available on Airbnb's platform. That way, when travelers look for a place to stay, they have multiple alternatives. And usually, the more options they have, the more likely they are to find the right place for them.
Importantly, Airbnb provides the technology to bring together hosts and travelers and makes customer support available to both. Equally important is what it does not do. Mainly, it does not build, operate, and maintain locations for travelers like hotels, resorts, or vacation properties. That asset-light business model gives it the potential to earn higher profit margins compared to hoteliers. For example, Marriott International earned an average operating profit margin of 8.8% in the past decade. Even in its peak year during that time -- 2017 -- it earned an operating margin of 13%. Airbnb still operates at a loss, but when it hits full stride, it could reasonably expect to achieve a better margin.
Moreover, in 2019 Marriott needed long-term assets of nearly $20 billion -- mainly hotel buildings -- to earn revenue of $20 billion. In comparison, Airbnb held long-term assets of less than $2 billion and earned revenue of $4.8 billion. The numbers may change from year to year, but the relationship stays the same -- Airbnb generates far more revenue per dollar of assets than Marriott. The same is likely to be true regardless of which hotel operator you compare to Airbnb.
For now, Airbnb offers potential because the company is still not profitable on an annual basis. It is still investing in building the technology, acquiring guests and hosts, and laying its future foundation.
Chegg
Online learning platform Chegg (CHGG 1.32%) is a leader in helping high school and college students with their curriculum. The company is top-rated among college students in the U.S., mainly because of its treasure trove of content. That treasure is over 60 million pieces of step-by-step solutions to problems students face in their everyday studies.
How does Chegg know what questions and answers to list? Students tell it. That's a unique concept -- create the content your customers ask for. Here's how it works: Customers pay a monthly fee to access Chegg and its resources. As part of the membership, students ask 20 questions per month that Chegg's subject-matter experts answer. The question and step-by-step solution are then made available to all of Chegg's subscribers so that anyone who wishes can learn from the new material.
Chegg has grown revenue by 26%, 28%, and 57% in the past three years. It was helped by the pandemic when students were sent home for remote learning, but it was growing before the outbreak as well. Like Airbnb, the company is still not profitable but is making progress toward that end. Its operating profit margin has increased from -1.8% to 4.4% to 8.8% in the past three years. However, it's still losing money on the bottom line.
Investor takeaway
Each of the two stocks mentioned has the potential to double your money in the next five years. The flip side is that each company comes with risks. Neither is profitable and each has yet to prove it can sustain profits over the long term.
Risk is necessary if you want to earn a return in financial markets. However, if you give yourself a longer time horizon, you can lower your risk. For instance, aiming to double your money over 10 years requires an annual rate of return of 7% compared to the 15% required to double in five years.
At times, due to life circumstances, it can be impossible to extend your investing time horizon. That said, when you can do so, it will increase your chances of hitting the mark.
