When investing large sums of money -- say, $50,000 -- you want to get things right. You want to balance risk with return. You want to invest in companies that are run well and have a compelling business model for the future.
I'll cover three growth stocks that I think are great investments today and should outperform the broader market over the next five years: Amazon (AMZN 1.63%), Crowdstrike (CRWD 0.31%), and Lululemon (LULU 0.87%).
There are many reasons to own Amazon, but here, I'll focus on just one: It's cheap. That may seem absurd for a stock trading at over $3,000 per share, but it's true. And no, I'm not referring to the much-publicized, upcoming stock split. That event will lower the actual dollar figure that Amazon shares trade at, but I'm thinking of its price-to-earnings (P/E) ratio.
As recently as 2015, Amazon traded at an astronomical P/E ratio of 900. In other words, buying the stock meant paying $900 for every $1 of Amazon earnings. However, Amazon has been growing by leaps and bounds. It's expected to grow revenue by 15% in 2022 and 17% in 2023. This incredible growth means that its current P/E ratio stands at 46, within a whisper of its all-time low. By this measure, Amazon has never been cheaper, stock split or not. When you consider all that the stock has to offer -- Amazon Prime, Amazon Web Services, and one of the greatest logistical networks ever built -- it's still a screaming buy after all these years.
No company wants to be blackmailed or have its assets stolen. Nevertheless, the meteoric rise of cybercrime has made it far more likely. High-profile incidents such as the Colonial Pipeline ransomware attack last year brought the threat home to the American corporate community. In response, demand for cybersecurity is expected to surge in the coming years.
Crowdstrike, a Texas-based provider of cloud security solutions, is likely to be one of the prime beneficiaries. It sells software-as-a-service (SaaS) security modules that monitor a customer's network using artificial intelligence. Some of its modules secure endpoints (i.e., laptops, phones, or tablets), while others provide identity protection. All the modules have one goal: To prevent security breaches. Moreover, Crowdstrike's software is designed to learn over time, detect unusual activity, and alert network administrators to anything suspicious before malicious actors can damage.
With so much riding on keeping digital systems and data secure, there is clearly a market for what Crowdstrike has to offer. In its most recent quarter, Crowdstrike grew its customer base 65% year over year and now boasts over 16,000 customers. A whopping 69% of those customers purchased four or more of its subscription modules.
Despite the rosy outlook, Crowdstrike is an ultra-growth stock, meaning you pay a premium to own it. Shares trade at a hefty price-to-sales ratio of 37. Wall Street expects sales to grow 48% in 2022, followed by 35% in 2023. If you're willing to hang on through the periods of volatility, Crowdstrike looks like a long-term winner.
A Vancouver-based athletic apparel company, Lululemon operates two segments: company-owned stores and direct-to-consumer. The company's products have grown in popularity through "unaided brand awareness," more commonly known as word-of-mouth. Its clothing is comfortable, attractive, and upscale -- with prices reflecting its status as a premium brand.
In addition to clothing, the company sells accessories for various "sweaty pursuits" -- think yoga, running, training, etc. In 2020, Lululemon bought Curiouser Products, the maker of Mirror, an at-home fitness start-up. Mirror is both a traditional mirror and an online portal to on-demand workouts and one-on-one training.
From a financial standpoint, Lululemon is firing on all cylinders. Last fiscal year (the period ended Jan. 31, 2022), revenue was $6.3 billion, up from $4.4 billion a year earlier. It has no net debt and generated $1.0 billion in free cash flow last fiscal year. Gross margins stand at 58%, above competitors like Nike (NKE -1.12%), and Adidas (ADDYY -2.26%), which have margins of 46% and 51%, respectively.
Moreover, Lululemon management recently presented a plan to double revenue from $6 billion to $12 billion over the next five years. With its strong brand loyalty and five-year plan, Lululemon looks like a winner.