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Got $1,000? 2 Growth Stocks to Invest in Now

By Parkev Tatevosian, CFA – Sep 14, 2021 at 6:49AM

Key Points

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These two companies show expanding profit margins as their top lines grow. That's a fruitful combination.

If you have $1,000 that you will not need for essentials like rent, food, and so on for at least the next several years, investing in growth stocks is a great way to increase your wealth. 

Growth stocks are normally companies expanding into new markets, offering new products, and sometimes doing both simultaneously. Before they mature to become large corporations, investing in growth stocks gives you the potential for nice returns on your money. Here are two such growth stocks to get you started. 

A dog holding a person's leg.

Image source: Getty Images.

Chewy

Chewy (CHWY 1.28%) is an online pet retailer benefiting from the wave of shopping that is migrating online. The move is unlikely to reverse, as shopping online offers many conveniences unavailable otherwise. For instance, you can shop online 24 hours per day, and you can have items delivered to your doorstep, removing the requirement for transportation.

The company is gaining popularity with customers as a one-stop shop for their pets' needs. In addition to carrying a wide assortment of products, Chewy offers customers an automatic order and delivery program. The service helps make sure Rover's tummy stays full by delivering food every week or every month. This way, you never forget to buy the food -- a nice convenience for folks living busy lives. 

Customers who sign up for the Autoship program, as it is called, get the added benefit of a telehealth service for their pets. For example, if Rover is not feeling well, the parent can Connect With a Vet through Chewy free of charge. It's yet another way Chewy differentiates itself from competitors and gives consumers another reason to choose Chewy. 

The pet retailer is making excellent progress in achieving scale efficiencies, growing its gross profit margin from 16.6% in fiscal 2016 to 25.5% in fiscal 2021. The increase has turned the corner on cash flow from operations, where the company brought in $85 million in the second quarter after losing $29 million in the same quarter last year.  

Chegg

Chegg (CHGG 0.34%) is an online platform that offers students resources to help them get through high school and college courses. The company's service is increasingly being adopted internationally but is most popular in the U.S. 

The core of its services is the 66 million step-by-step solutions of course material the company has on its site. This is proprietary content the company has created through its subject-matter experts. As part of a monthly subscription to Chegg, students can ask up to 20 questions and have them answered by Chegg's experts. These form the foundation of Chegg's content, and it added seven million new solutions in the most recent quarter alone.

Importantly, the company pays for that material once, and it can then be shared among existing and future subscribers to Chegg potentially for decades. What's more, the content helps attract new customers through search engines at little or no cost. The business model is asset-light and scales efficiently.

Indeed, Chegg has grown adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) at a compounded annual rate of 78% between 2016 and 2020.

Investor takeaway 

Chewy and Chegg are two excellent businesses growing in their respective areas. As their sales are expanding, so are their profit margins. So if you have $1,000 to invest for the next few years, these are two growth stocks worth considering. 

Parkev Tatevosian owns shares of Chewy, Inc. The Motley Fool recommends Chegg and Chewy, Inc. The Motley Fool has a disclosure policy.

Stocks Mentioned

Chewy Stock Quote
Chewy
CHWY
$44.92 (1.28%) $0.57
Chegg Stock Quote
Chegg
CHGG
$29.69 (0.34%) $0.10

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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