The market sell-off in 2022 has not been a walk in the park for investors. But those with a long horizon know that times like the present are when you can buy some great growth stocks at steep discounts to where they were just a few months ago.
If you want to build long-term wealth, here are three top growth stocks you can put $1,000 each into now and then hold to build a fortune a decade from now.
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1. Dutch Bros
Dutch Bros (BROS -0.66%) -- the Oregon-based purveyor of coffee, frozen drinks, and energy drinks with colorful names like Shark Attack, Unicorn Blood, and even the Double Rainbro -- has been a red-hot growth story over the last few years, nearly tripling its revenue since 2018. Not only that, Dutch Bros has been rapidly expanding its footprint, with 572 locations as of the end of 2021 versus 328 at the end of 2018.
Dutch Bros was also one of last year's hottest initial public offerings (IPOs) and soared to an all-time high of $81.40 before coming back down to Earth during this year's market-wide sell-off. Dutch Bros was hurt by inflation due to not only rising dairy prices (a key input for the company) but also rising gasoline prices since its locations are drive-throughs, and many of its customers are in the younger demographic and, thus, particularly affected by rising gas prices.
The sell-off is an opportunity for investors who feel like they missed out on Dutch Bros the first time around to invest in this dynamic, fast-growing company and feel good about it 10 years from now.
Dutch Bros has exhibited stellar growth thus far, but let's remember that many customers east of the Mississippi River have yet to even hear of Dutch Bros, let alone try it. That means there is still plenty of untapped growth ahead if the company can become a hit in the Eastern U.S. as it has in the West. Dutch Bros plans to eventually open 4,000 stores in the United States, and if it executes on this plan, it should be worth significantly more a decade from now than it is today.
2. Nextdoor Holdings
Nextdoor Holdings (KIND 1.54%) doesn't get nearly the same amount of attention as some of its social media peers, but maybe it should. Led by former Square executive Sarah Friar, Nextdoor is a neighborhood-focused social network that connects neighbors, businesses, and public services. The company is growing revenue by 48% year over year and average revenue per user (ARPU) by 12%. Meanwhile, weekly active users have grown by 33% to 37 million.
Despite these impressive results, the company has been caught up in the market sell-off that has hit former special purpose acquisition companies (SPACs) and early-stage companies particularly hard. But this sell-off now offers an attractive entry point to risk-tolerant investors who have an opportunity to buy the next potential social media powerhouse at an 80% discount to where it was trading just a few months ago.
The company recently authorized a share buyback that could take about 10% of the shares outstanding off the market, so it seems management views the current price as an attractive entry point as well.
While Nextdoor is growing its average revenue per user, it is still below that of other social media companies. So there is room for it to grow further and become an attractive option for advertisers. And I believe it will since Nextdoor's hyper-local focus offers an attractive value proposition to small- and medium-sized businesses (SMBs).
If Nextdoor can keep increasing its user count and active revenue per user and get both of those numbers closer to those of some of its larger social media peers, the stock should be worth considerably more than it is today.
3. Carvana
Like the previous two stocks, Carvana (CVNA 0.29%) is a monster growth story, but one that has fallen on hard times recently. Shares of the used car marketplace are down 93% from their 52-week high in November. The company is burning through a lot of cash and is not profitable, which does not make investors feel warm and fuzzy in the current market environment. Carvana also raised a lot of debt to acquire ADESA's physical auction business.
You're probably thinking, "This doesn't sound great. How could this stock make me a fortune in 10 years?" Here's the answer: Carvana is growing at a phenomenal rate and is improving upon a massive and lucrative market that many consumers feel is in dire need of improvement -- a winning combination. It has already grown into the second-largest seller of used vehicles in the United States in less than a decade of existence.
The company ramped up revenue from $5.58 billion in 2020 to $12.81 billion in 2021, for a year-over-year gain of 129%. The company also sold 425,237 vehicles in 2021, up from 244,111 in 2020. The growth has been phenomenal. The challenge now is for the company to figure out how to translate this revenue growth into profitability and free cash flow.
The management team is now focused on cutting out selling, general, and administrative (SG&A) expenses and improving unit economics so that it can become profitable. If they can do this and navigate the current challenges, the opportunity here is immense and looks like an appealing high-risk, high-reward opportunity for risk-tolerant investors.
10 years from now
Looking at the opportunities like these through a long-term lens can help investors add some great growth stocks to their portfolios when the market is down on them. As these companies navigate the current challenges and the market warms up to growth stocks again, these stocks could become worth substantially more 10 years from now than they are today, and a few thousand dollars invested could grow into a fortune.
