Since the end of the Great Recession in 2009, growth stocks have been off to the races -- and with good reason. Sustained periods of historically low lending rates coupled with quantitative easing measures from the Federal Reserve have created an abundance of cheap capital that fast-paced companies have used to hire, acquire, and innovate.
Chances are that growth stocks still have plenty of runway left to shine. Right now, the following trio of fast-growing companies stands out for all the right reasons, and offers the potential to make investors a lot richer in the fourth quarter, and most importantly, well beyond.
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Square
With its share price retracing about 20% from its all-time high, fintech stock Square (SQ -1.76%) is the first growth stock to consider buying hand over fist for the fourth quarter.
For more than a decade, much of Square's growth has been founded on its seller ecosystem. The company's seller ecosystem provides point-of-sale solutions, data analytics, loans, and other tools to help predominantly smaller merchants grow their business. In 2012, $6.5 billion in gross payment volume (GPV) traversed Square's network. But by 2019, the year prior to the pandemic, a little over $106 billion in GPV was registered. This year, GPV looks to be on pace to top $140 billion with ease.
The really interesting thing about the seller ecosystem is that it's not just for small businesses any longer. As time has passed, businesses generating $125,000 or more in annualized GPV have accounted for more GPV on Square's network. In the June-ended quarter, 65% of all GPV in the seller ecosystem derived from these larger businesses, which was up 10 percentage points from the same period in 2019. Because this is a merchant fee-driven segment, bigger businesses will almost certainly lead to higher gross profits.
But from this point forward, digital peer-to-peer payment platform Cash App is Square's greater growth opportunity. Downloads of Cash App have consistently outpaced rival Venmo in the U.S. over the past two years, and monthly active users (MAU) more than quintupled for Cash App to 36 million from 7 million in the three-year period ended Dec. 31, 2020.
Cash App not only speaks to a younger generation of banking customers, but it offers Square more opportunities to generate revenue. Aside from just merchant fees, Cash App collects revenue from bank transfers and investments. In fact, Cash App has become a popular app with which to buy or sell Bitcoin, the largest cryptocurrency by market cap.
The icing on the cake for Square is its pending acquisition of buy now, pay later service Afterpay. This deal will create a closed ecosystem that links Cash App with its seller ecosystem and could really supercharge margins. As a reminder, the company is already bringing in $55 in gross profit per MAU from Cash App, while spending just $5 to court each new user.
Suffice it to say, Square looks like a transformational company growth investors will want to own.
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Cresco Labs
After a smoking-hot start to the year, marijuana stocks have been nothing short of a buzzkill for the past seven months. The good news is that this short-term pain is providing a perfect entry point for opportunistic long-term investors. That's why U.S. multistate operator (MSO) Cresco Labs (CRLBF -3.67%) is such a smart buy.
A lot of the concern surrounding U.S. pot stocks has to do with the Biden administration thus far failing to pass any cannabis reform measures. Many on Wall Street were clearly hopeful that a Democrat-led Congress would have little trouble ushering in reforms, but lawmakers have been preoccupied with other issues, like the pandemic.
Nevertheless, 36 states have legalized cannabis in some capacity, and the federal government is maintaining a hands-off approach in allowing states to regulate their weed industries. There's more than enough organic growth and new state legalization potential for pot stocks like Cresco Labs to deliver jaw-dropping growth.
Like most MSOs, Cresco Labs is leaning on its retail operations to do the talking. It currently has 37 operating dispensaries, but will add three more once its acquisition of Cure Pennsylvania closes in the fourth quarter. Tack on 10 additional retail licenses in its back pocket, and Cresco can eventually have as many as 50 operating dispensaries.
What's notable about Cresco's retail expansion is that it's choosing a lot of limited-license markets, such as Illinois, Ohio, and Pennsylvania, to name a few. Limited-license states cap how many dispensaries can open in a given state, as well as how many licenses a single business can hold. By targeting high-dollar markets where regulators are purposely limiting competition, Cresco Labs is ensuring itself the best possible chance to build up its brands and garner a loyal following of customers.
But what sets Cresco apart is the company's industry-leading wholesale operations. When it acquired Origin House in January 2020, Cresco came into possession of a cannabis distribution license in California, the most lucrative pot market in the world. This license allows the company to place proprietary cannabis products into more than 575 dispensaries throughout the Golden State. Even though wholesale cannabis generates lower margins than retail, the volume potential for Cresco more than makes up for these lower margins.
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Novavax
A third growth stock set to make investors richer in the fourth quarter and likely well beyond is clinical-stage biotech company Novavax (NVAX -4.84%).
Normally, a clinical-stage biotech stock wouldn't qualify as a growth stock because, as a clinical-stage company, it doesn't have any recurring revenue. But that's about to change, with Novavax expected to deliver aggregate sales growth of more than 1,300% by mid-decade, according to Wall Street's consensus estimates.
What's expected to put Novavax on the map is its leading coronavirus disease 2019 (COVID-19) vaccine candidate, NVX-CoV2373. Though its scientific name hardly rolls off the tongue, Novavax's experimental vaccine has done the job it was intended for in clinical trials. In March, the company reported an aggregate vaccine effectiveness (VE) of 89.7% in the U.K. against the original strain of COVID-19 as well as the U.K. variant. Three months later, NVX-CoV2373 produced a 90.4% VE in a large-scale trial in the U.S. and Mexico. With such robust initial VE, Novavax has a realistic shot at pushing its way past Johnson & Johnson and AstraZeneca to become the No. 3 vaccine supplier in developed markets.
The only reason Novavax's share price hasn't skyrocketed into the heavens like Moderna is because it's delayed its emergency-use authorization filing in the U.S. on multiple occasions, and pushed out its timeline for full vaccine production to at least the fourth quarter. Obviously, this means Novavax missed an opportunity to become a key player early in the vaccine process. However, with the SARS-CoV-2 virus mutating and COVID-19 looking like an endemic illness, Novavax could benefit via booster shots and the ongoing global vaccination campaign. In other words, the company could be bringing in billions in recurring revenue from COVID-19.
Where Novavax does have its foot in the door ahead of its competitors is in the combination vaccine department. Novavax is testing a combo vaccine for COVID-19 and influenza. While it won't be the only drugmaker taking this step, it has the capacity to beat other drug developers to market with a combination treatment.
There looks to be plenty of upside yet to come for Novavax.
