Over the last decade, the S&P 500 Growth Index has generated a return of 16.7% per year, crushing the 7.4% annualized return of the S&P 500 Value Index. Of course, growth stocks aren't for everyone. They tend to be highly volatile investments over short periods of time, and the current market environment is a perfect example. High inflation and impending interest rate hikes have sparked a market sell-off, and growth stocks have been hit particularly hard.
The key is understanding your own risk tolerance. If you can handle that volatility, and you have decades before retirement, it will be a smart move to allocate a good portion of your portfolio toward growth stocks. To that end, Airbnb (ABNB 0.75%) and Block (SQ 2.32%) look like great additions to any long-term investor's portfolio.
Here's why these two unstoppable stocks are good buy-and-hold candidates for the next decade.
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1. Airbnb
Since its launch in 2008, Airbnb has revolutionized the way people travel. Today, its platform lists over 6 million properties, and by crowdsourcing that inventory from hosts around the world, Airbnb offers its guests far more flexibility than traditional hotels. For instance, you could stay in a rustic farmhouse in the country, a trendy apartment in the city, or a log cabin in the mountains. What hotel chain offers all of those options?
Even if a hotel chain could match Airbnb's inventory, the company has another advantage: Its business model is more agile. It can onboard new hosts and expand its inventory in minutes, without spending much money. But it takes months and millions of dollars to build a new hotel. That means Airbnb can respond more quickly to changes in consumer travel preferences. For instance, travel to small towns and other rural areas is up 45% since 2019, and Airbnb saw a 20% uptick in non-urban listings in the most recent quarter. No hotel can move that quickly.
That competitive advantage has translated into strong financial results. In 2021, revenue soared 77% to $6 billion, fueled by a 56% increase in bookings and an uptick in average daily rates. Better yet, the company generated $2.2 billion in free cash flow, up from a loss of $667 million in the previous year.
Going forward, Airbnb is well-positioned for future growth. Management estimates its total addressable market (TAM) at $3.4 trillion, yet the company posted a gross booking value of $46.9 billion over the past 12 months -- that's just over 1% of its TAM. But in the coming years, Airbnb's popularity with younger travelers should fuel growth, and its first-mover status and agile business model should keep it ahead of the competition. That's why this growth stock looks unstoppable.
2. Block
Block is a fintech company that breaks its business into two segments: The Square ecosystem and the Cash App ecosystem. The former is an omnichannel commerce solution comprising all of the software, hardware, and financial services merchants need to manage a business across physical and digital locations. The latter is a money management solution that allows consumers to send, spend, invest, and file taxes through a single platform.
As part of the Square product line, Block offers point-of-sale software designed specifically for retailers and restaurateurs, and those options have helped the company gain traction with larger sellers. In fact, mid-market sellers (those with over $500,000 in annual sales) accounted for 37% of gross payment volume in fourth-quarter 2021, up from 24% in Q4 2018.
More broadly, Block's extensive portfolio of self-service products differentiates it from traditional merchant services providers, which usually bundle hardware, software, and services from multiple companies. That makes things more complicated for merchants, especially those that lack robust IT support.
To that end, Block's business continues to grow quickly. Over the past year, gross profit surged 62% to $4.4 billion, driven by strong results in both ecosystems, and the company generated positive free cash flow of $713.5 million, up $34.7 million in 2020.
Turning to the future, Block puts its market opportunity at $160 billion, and management is working on an ambitious growth strategy. The company recently completed its acquisition of "buy now, pay later" firm Afterpay, a move that Block believes will boost merchant sales and drive consumer engagement. More broadly, e-commerce and digital payments are quickly growing industries, and Block is an important player in both spaces. And with shares trading at just 2.9 times sales -- far cheaper than their five-year average of 8.1 times sales -- this growth stock looks like a bargain right now.
