3 Growth Stocks to Set You Up for the Next 10 Years

Worries over the economy have sent shares of quality companies down to attractive valuations that could set the stage for great returns. The S&P 500 index, which tracks the performance of some of the largest companies, is down about 20% year to date, but many growth stocks have crashed harder in this bear market.

Market crashes are a normal occurrence and can set the stage for tremendous returns over the long term, as those who bought stocks during the COVID-19 crash two years ago well know. Three growth stocks, RH (RH -2.95%), Roku (ROKU -0.81%), and Dollar General (DG 0.19%), still offer above-average growth prospects and could outperform the market over the next decade. Let's find out a bit more about them.

1. RH

RH (previously called Restoration Hardware) is known as a high-end furniture brand, but under the leadership of CEO Gary Friedman, the company is transforming into a lifestyle brand. This is a key distinction that market participants don't understand yet, which gives long-term investors the chance to buy shares at a low price-to-earnings (P/E) ratio of 10 based on this year's consensus earnings estimate.

The stock trades at a big discount to the average stock's P/E of 24 based on the S&P 500 index.

Management is investing in several growth opportunities, such as the planned expansion into the $200 billion North American hotel market. RH is also launching a luxury yacht experience, RH Residences, and opening more furniture galleries globally.  

The market is valuing RH like a struggling retailer in a recession, but the company's past growth, in which revenue has more than tripled over the last decade, and its transformation into a lifestyle brand says the market is significantly undervaluing the business. The stock should be much higher in 10 years, especially from this low P/E multiple.

2. Roku

Roku is another stock the market has beaten up over the last year, but the market's loss is a long-term investor's gain. Roku has built a great brand in streaming entertainment. Through its affordable line of Roku TVs, the company has gained a dominant position with around 50% market share of the North American connected TV market. 

With a growing roster of 61 million active accounts, Roku has a massive opportunity to win over the advertising spending that hasn't switched from legacy TV.  

Roku's dependence on advertising is the primary reason the stock has been hammered. But that's taking a very shortsighted view of the business' value. The $60 billion in traditional TV advertising will eventually shift to digital platforms, and Roku's dominance in the connected TV market puts it in a perfect position to gain its share of the pie. It's already seeing advertisers invest in its platform, with average revenue per user (ARPU) increasing by 34% year over year in the first quarter.

Another opportunity is capturing more of the 269 million smart TVs that were sold globally in 2020, according to Grand View Research. That number is expected to increase at an annualized rate of 21% through 2028. That's a lot of potential new accounts for Roku to win over.

With the stock off 80% from its highs, investors are deeply underestimating the company's growth in ARPU and its ability to continue winning over millions of new accounts over time.

3. Dollar General

If you want a less volatile growth stock that can still deliver market-beating returns, look no further than Dollar General. The stock has outperformed the broader market year to date, delivering a return of 5%. 

Dollar General has been delivering everyday essentials at value prices for decades. It's during times of high inflation that consumers value shopping at Dollar General to save money, and that's a big reason for the stock's outperformance in 2022.

However, Dollar General is not immune to the challenges in the economy. Same-store sales declined slightly in the first quarter, but that was primarily due to a decline in sales of non-consumable categories where the company was facing difficult year-over-year comparisons to early 2021 when people received stimulus checks. 

The company's competitive advantage stems from its large store footprint of 18,000, which puts a Dollar General store within five miles of 75% of the U.S. population. The company still sees more room for expansion. It executed 800 new real estate projects last quarter.  

With a dividend yield of 0.9%, investors also get paid some cash to hold the stock as we wait for the bear market to end. Dollar General offers growth, dividend income, and stability from market volatility.