A new cohort of retail investors is rallying around film rental company Redbox Entertainment (RDBX), and shares have rallied nearly 300% off of their 52-week low. The frenzy has drawn comparisons to Gamestop (GME -3.94%) and AMC (AMC 8.23%) -- and while early investors in both of those meme stocks enjoyed substantial gains, later investors were left holding the bag as the stocks plummeted from their highs when the momentum died out.
For smart, long-term investors, there are plenty of great growth stocks out there that are better ways to build long-term wealth than investing in the latest meme stock. Here are two companies that are set for long-term growth for years to come.
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1. Dutch Bros
While the number of Redbox kiosks around the country is shrinking as its core business of DVD rental is in decline, the number of Dutch Bros (BROS -3.90%) locations is growing at an impressive rate. The Oregon-based purveyor of coffee, shakes, and energy drinks has grown its footprint from 328 in 2018 to 538 by the end of 2021 and has plans to reach 572 by the end of this year.
Dutch Bros just opened its first locations east of the Mississippi in 2022, so there is plenty of new territory there for the taking. Even better, Dutch Bros is also growing its revenue at an impressive compound annual rate of 38.8% in the same time frame, or 260% in total, to $498 million in 2021 . With many consumers east of the Mississippi River yet to hear of the brand and a plan to eventually expand to over 4,000 locations in the United States , the stock is set up for years of growth.
Shares of Dutch Bros are down about 50% from their 52-week high. The company believes higher gas prices are hurting its customers while inflated dairy costs are eating into its bottom line. But the shares have also now rallied furiously off their lows, indicating that investors perhaps see these problems as temporary and the long-term potential as having staying power.
While I am not willing to gamble on Redbox reinventing itself as a streaming service and being worth more than it is today, I am willing to allocate part of my portfolio toward the possibility of Dutch Bros being worth much more than it is today several years from now as it continues to expand across the country and grow revenue at a prodigious rate.
2. HashiCorp
HashiCorp (HCP 2.42%), a cloud automation software provider, does not have much in common with Dutch Bros aside from the fact that it also looks like it is well-positioned for years of long-term growth.
HashiCorp makes open source tools that work with the offerings of all the cloud providers. Rather than competing with cloud behemoths like Microsoft (MSFT 0.46%) and Amazon (AMZN 1.49%), HashiCorp is developing tools that complement their offerings. The company has nine different product offerings that serve different areas of the cloud infrastructure market. With the cloud expected to grow by an expected 15% compound annual rate between now and 2026 , this seems like a prudent strategy.
HashiCorp grew revenue over 50% year over year in its most recent quarter. Not only did the company grow revenue, but it also demonstrated increasing adoption as it grew its total number of customers from 1,736 in its first quarter of fiscal 2022 to 3,240 in the most recent quarter. While the company is growing its total number of customers, it is also building up its base of customers that spend over $100,000 in annual recurring revenue from 523 in the first quarter of fiscal 2022 to 704. Additionally, The company had a second customer reach $10 million in annual recurring revenue during the most recent quarter .
The stock sold off last week after earnings based on the company's guidance for 33% revenue growth for the full year (which was actually a slight increase from previous guidance), which is impressive growth but seemingly not enough for investors to justify paying 14 times sales in the current market environment. However, the sell-off looks like a decent entry point for a stock where the long-term outlook still looks bright.
The company's land-and-expand business model seems to be working as more customers are trying HashiCorp out and then increasing their spending over time. Its net dollar retention rate, a key metric to watch in software, is at 133%. This shows how much money existing customers are spending from one year to the next, so HashiCorp's existing customers are spending 33% more than a year ago .
As a recent IPO, HashiCorp boasts a strong balance sheet with over $1.3 billion in cash and no debt, so I am willing to bet that it can survive the difficult market for unprofitable software stocks and come out stronger on the other side. I'm interested in shares of HashiCorp after the sell-off and willing to bet on their compelling and wide array of open-source products in a high-growth market segment, making this a good stock to own over the long run.
Why gamble on Redbox?
In conclusion, there's no need to gamble on an uncertain outcome for stocks like Redbox when there are many smarter calls you can make with your portfolio without resorting to some sort of Hail Mary. In reality, there are plenty of smarter buy-and-hold long-term investments one can make -- like Dutch Bros and HashiCorp -- that are much more likely to help investors build long-term wealth.
