Growth stocks have been pummeled in the recent market sell-off as rising interest rates and fears of an economic slowdown hit investor sentiment hard. For a long-term investor, though, such periods of correction also offer some of the best opportunities to find growth stocks that could become huge winners in the next decade or so, given their business growth potential. Here are three such growth stocks that look like winners in the making.
An industry with exponential growth potential
Sales of electric vehicles (EVs) are rising so rapidly that there are more EV manufacturers now and more EVs lined up for launch globally than one could possibly count. Yet some companies have started off well and could go a long way if they effectively build upon their growth plans. Nio (NIO 5.26%) is one such company with strong potential.
Nio is headquartered in the world's largest EV market, China, and that itself opens up a lot of opportunities for the company.
In 2021, China alone accounted for 53% of global sales of new energy vehicles (NEVs). NEV sales, which includes plug-in hybrids, all-electric battery vehicles, and fuel-cell vehicles, jumped 118% in China in 2021, according to NEV-focused website CnEVPost. The craze continues into 2022: Even in April, when overall vehicle sales plunged nearly 48% in China amid COVID-19 lockdowns, NEV sales climbed 45% year over year.
Nio is among the front-runners in the premium electric-car segment in China, and it eventually plans to build a mass-market brand to capture a larger market –- something it has already started working on. In 2021, Nio sold 91,429 EVs and generated revenue worth nearly $5.7 billion. It's on pace to top those volumes in 2022, having already sold 30,842 EVs from January to April.
Image source: Nio.
Nio currently sells three SUVs -- the ES8, ES6, and EC6 -- and a sedan, the ET7, deliveries of which began in late March. Nio expects to start deliveries of its fifth EV, the ET5, in September. It also plans to launch more products and enter four European markets this year after launching in Norway last year. And, if Chinese media is to be believed, Nio is even planning to build a plant in the United States. It already has a research and development center in San Jose, California.
A major overhang for Nio in recent months was the threat of delisting from the U.S. that many foreign companies are facing. Nio, however, has already listed its stock in Hong Kong and Singapore to provide U.S. shareholders with alternative platforms to trade their shares. Nio stock, though, is still down almost 45% year to date, offering an excellent opportunity for investors willing to take a risk.
Hard to displace this leader
With Salesforce (CRM 1.27%) stock down almost 36% so far this year, I couldn't stress enough why this seems like a no-brainer stock that could grow by leaps and bounds in the coming decade.
The thing is, Salesforce dominates the global customer relationship management (CRM) market, and it has such a strong lead over closest rivals that it's hard for any company to even try to play catch-up. For context, Salesforce's global market share of 19.5% in 2020 was more than the combined market share of the next four largest CRM companies.
The CRM software market broadly manages a company's interaction with and information about existing and potential customers. With more organizations emphasizing the need to build better customer experiences and relationships to boost retention and sales, the CRM market is projected to grow by double-digit compound annual growth rates over the next five years or so. It's highly likely Salesforce will make the most of this opportunity, like it has so far.
Salesforce has almost doubled its sales in just four years, with its revenue growing 25% in the financial year ended Jan. 31.
It was, in fact, a record year for the company in terms of revenue and cash flows. Salesforce even raised this year's revenue guidance and expects to generate $32.1 billion at the high end of its range estimate, or up nearly 21% from last year.
The stock, though, is trading at a price-to-sales multiple of 6, significantly below its five-year average P/S of 9. It's a steal given the pace at which Salesforce's revenue could potentially grow in the next 10 years.
The evergreen growth stock that won't disappoint
If you've ever used Google, chances are you've contributed in some way to Alphabet's (GOOG 1.43%) (GOOGL 1.42%) business. And given how ubiquitous Google is as the world's largest search engine provider, it's hard to see Alphabet not growing in the years to come. As of December, Google cornered 85.55% of the global search market, according to Statista.
Alphabet primarily makes money from Google services, which includes advertising that appears on Google search, YouTube, and other networks. This part of its business alone brought in 81% of Alphabet's total revenue each in 2020 and 2021. The remainder of its revenue came from non-advertising services like Google Play, YouTube subscriptions, and hardware, as well as Google Cloud.
Each of these businesses have grown by double digits in the past couple of years and continue to deliver strong numbers this year so far. In fact, Alphabet's advertising revenue has grown steadily year after year in the past two decades, with 2021 turning out to be an exceptionally strong year.
Here are some numbers from Alphabet's 2021 earnings report worth noting:
- Revenue up 41% to $257.6 billion.
- Net income up 89% to $76 billion.
- Free cash flow up 56% to $67 billion.
That's not to say Alphabet doesn't face competition. Cloud services like that of Amazon's are gaining traction rapidly and way ahead of Google in terms of market share, and the digital advertising market is heating up like never before.
Yet Alphabet has a lot going for it. For example, it is investing aggressively into artificial intelligence to boost search and advertising experiences, and it intends to take its cloud services to the next level by acquiring cybersecurity company Mandiant in a move that could add substantial value to Alphabet's top line in the future.
With Alphabet stock crashing by almost 20% since April as of this writing and trading significantly below its five-year average price-to-sales and price-to-earnings ratios of 6.7 and 33.6, respectively, this is one tech growth stock that could make investors a lot of money in the next decade.
