There's only one overarching reason an investor would take on the above-average risk of owning a growth stock. That's the expectation of above-average returns. Things don't always work out this way, of course. Sometimes, a highly touted growth stock flops. Other times, it can take years for a trade to truly pan out in a way that makes its risk and opportunity cost worth the wait.
With that as the backdrop, here's a closer look at three growth names that could produce huge, long-term gains but will probably need a lot of time to pay off as hoped. None of them have exactly been bullish screamers of late, and they may not be huge crowd-pleasers in the foreseeable future.
Yet, all three stocks below are arguably undervalued right now, making them solid additions to most portfolios.
When investors think of artificial-intelligence stocks, C3.ai (AI 1.43%) isn't a name that typically comes to mind. The company generally operates in the industry's background, offering software that gives organizations the means to plug into the power of artificial intelligence (AI). The company's C3 AI Energy Management platform, for instance, helps utilities reduce costs and improve the efficiency of their power production. In total, C3's software is currently helping its clients make collectively on the order of 1.7 billion predictions every single day.
There's never been a better time to be in the business. Technology market research outfit Gartner estimates that the artificial intelligence software market is on pace to grow more than 21% this year to reach $62.5 billion. Another technology market research and consulting company, IDC, anticipates that this sort of growth will persist at least through 2025.
Investors should be aware that C3.ai isn't profitable yet despite growing its top line at more than a 30% clip for a couple of years now. It's not expected to work its way into the black this year either, or next year for that matter. In fact, its loss is projected to widen in 2022 and 2023.
As mentioned, though, this is a long-term idea. The risk of owning it is modest compared to the growth prospects investors will gradually price in as long as the company is making measurable progress toward profitability.
While C3 is anything but a household name, growth stock Shopify (SHOP 2.58%) is much more likely to ring a bell. On the off chance you're not familiar, this company helps small (and not-so-small) businesses set up and manage their own e-commerce operations.
The rise of Shopify is really a rejection of sorts of Amazon. While Amazon.com is the undisputed king of e-commerce, it's easy for the site's third-party sellers to get lost in a sea of competition. In fact, oftentimes Amazon itself is that competitor, potentially poaching a customer that a seller brought to the site. Throw in the fact that Amazon -- rather than the seller -- ultimately owns these customer relationships, and it's easy to understand why businesses are looking for other ways to connect online with consumers.
That's a key reason Shopify was able to extend its red-hot growth streak last year, ramping up revenue by 57% from 2020's tally. Operating income nearly tripled for the time frame in question with the company settling into its relatively new profitability.
That being said, there's every reason to expect several years of continued growth at a comparable pace. In its recent look at Amazon's budding advertising business, e-commerce consulting company Feedvisor notes that only 43% of U.S. brands currently sell anything through an e-commerce website of their own. That means the other 57% could make such a move in the future.
And they're slowly but surely coming around. Feedvisor reports that 14% of these brands are considering using Shopify's service, up from 10% just a year ago.
Finally, add SolarEdge Technologies (SEDG -0.94%) to your list of growth stocks to buy for their incredible, long-term potential.
As the name suggests, SolarEdge is a solar power company. It's not a solar panel maker, though. Rather, the organization specializes in an aspect of the industry that's overdue for an evolution. That's management of the power that solar panel power systems generate.
SolarEdge's centerpiece product is its power inverter paired with an app allowing users to minimize their energy consumption by optimizing how it's collected and stored. It's also got solutions tailor-made for commercial usage. SolarEdge even caters to installers, knowing that this still-nascent business can be tricky to navigate.
While solar panels are anything but a new idea, the bulk of the industry's growth lies ahead of it rather than behind. The United States Energy Information Administration (EIA) says that as of the end of last year, less than 3% of the country's electricity was generated by solar power systems. Yet in January, the very same EIA reported that half of this year's electricity production capacity growth will come from solar panel installations.
The rest of the world isn't much further ahead in terms of solar power usage, setting the stage for massive growth from the industry as a whole -- and from SolarEdge Technologies in particular. Analysts expect 47% revenue growth from the company this year followed by more than 25% sales growth next year. Per-share earnings are projected to nearly double during that two-year stretch.