One of the most profitable things an investor can do is buy and hold a high-growth stock for a decade or longer. If you find the long-term winners like Netflix (NFLX 3.72%) or Amazon (AMZN 0.92%), which are both up more than 1,000% over the last 10 years, it is usually best to just keep things simple and not sell. The hardest part is finding these long-term compounders before they go up 10x in price, which is what a lot of investors are searching for when researching companies.
Electronic Arts (EA 0.46%), Wix.com (WIX 3.02%), and Take-Two Interactive (TTWO 2.00%) are three high-growth stocks that exhibit these characteristics and could be great buys for the next 10 years and beyond.
1. Electronic Arts
Electronic Arts (EA) is a video game publisher boasting many different titles. The company focuses on sports, with franchises like FIFA Soccer, Madden NFL, and others. It also has many other games under its umbrella, such as The Sims, Apex Legends, and Battlefield. These franchises are very durable, and many of the sports games face no real competition. This allows EA to grow easily alongside the broad video game market, which is projected to grow at a compound annual growth rate (CAGR) of 10% through 2026.
On top of this industry growth, EA is using its healthy cash flow to acquire other gaming studios. In 2021, it has acquired four so far, the most important being Codemasters, which is the racing-game publisher that makes the Formula One game. It also acquired Glu, a mobile-focused studio that will, hopefully, help EA improve its mobile gaming offerings. If EA can intelligently use these studios, the company should be able to grow its overall sales by more than the industry average over the long term.
Image source: Getty Images.
FIFA Soccer is EA's biggest game, but the fastest-growing is Apex Legends, a free-to-play title released in 2019. According to management, the franchise is closing in on $1 billion in annual bookings (the sales equivalent for video games), phenomenal growth less than three years after launching. With the franchise set to come out with a mobile game sometime soon, this rapid growth should continue over the next few years, driving a lot of EA's overall growth along with it.
EA expects to generate $7.6 billion in net bookings this fiscal year and $1.95 billion in operating cash flow. With a market cap of $40 billion, EA stock is trading at a discounted price-to-operating-cash-flow (P/OCF) of 20.5 if it is able to grow along with the overall video game industry over the next decade.
2. Wix.com
Wix.com is a platform that allows companies and individuals to publish their own websites. It has tools for all different types of websites, from standard visual pages and blogs to e-commerce tools and much more. With more businesses now wanting an online presence, Wix is seeing strong demand for its website-creation subscriptions.
In 2021, the company is guiding for $1.27 billion in revenue at the high end of its guidance, which would be 28% growth from 2020. Looking even farther back, Wix has continued to put up stable growth, growing its revenue every year from 2017 when it was only $426 million. Wix is seeing strong growth from its Business Solutions segment, which houses e-commerce tools similar to Shopify. Business Solutions' revenue grew 75% year over year in the second quarter to $80.5 million. Much of this growth is coming from Wix Payments, Wix's in-house payment processing service that is expected to hit $10 billion in gross payment volume (GPV) in 2021.
Wix stock is down over 20% this year, which is likely because investors were expecting higher growth from the company. It is also unprofitable, with net losses so far this year, however, this shouldn't be a concern for shareholders since Wix is growing quickly, has high gross margins, and has a reliable subscription customer base. At a market cap of $11.6 billion, Wix stock offers a chance at outsized returns if the company can continue growing its revenue at a more than 20% rate from the $1.27 billion it expects to generate in 2021.
3. Take-Two Interactive
Like EA, Take-Two Interactive is a video game publisher. The company owns many different franchises but has three big ones that drive its sales: Grand Theft Auto (GTA), Red Dead Redemption (RDR), and NBA 2K. NBA 2K is similar to FIFA Soccer or Madden NFL, which comes with an annual release plus live services for players.
GTA and RDR sales are lumpier since games are only released once or twice every decade. So, how does Take-Two make money from these franchises? Through their own online services -- GTA Online and RDR Online -- both of which have grown rapidly in usage and profitability over the last five years. This has led to Take-Two's Recurrent Consumer Spending segment growing at a 37% CAGR through fiscal year 2021. That's an incredibly impressive growth rate considering it is driven by only a few services. Overall net bookings have grown at a 17% rate in the same time period.
With the consistent usage of these online services, Take-Two's business is even more reliable than it was five or 10 years ago when its financials solely relied on the number of games it sold. With a new GTA game (Take-Two's biggest franchise) expected to be released in a few years, the business should get a boost in growth to go along with these high-growing online services.
Take-Two's stock is already up over 1,000% in the last 10 years. With a market cap of $21 billion and a path to over $1 billion in free-cash-flow generation within the next few years, the stock is poised to deliver similar returns over the next 10.
