Rising interest rates drove many investors away from growth stocks over the past year. That sell-off wasn't surprising, since the valuations of many growth stocks had skyrocketed to unsustainable levels last year.
On the bright side, that pullback created some good buying opportunities in high-quality stocks. So today, I'll cut through the near-term noise and take a closer look at three promising names: ServiceNow (NOW -4.28%), Salesforce (CRM -7.28%), and MercadoLibre (MELI -1.96%) -- which could easily triple a $10,000 investment today into more than $30,000 by the end of the decade.
Image source: Getty Images.
1. ServiceNow
ServiceNow helps companies organize their unstructured work patterns into streamlined cloud-based workflows. That approach helps companies cut costs, improve efficiency, scale up their operations, and optimize their business models for hybrid and remote workers.
Annual revenue grew from $1.4 billion in 2016 to $5.8 billion in 2021, representing a five-year compound annual growth rate (CAGR) of 33%. Its adjusted earnings per share (EPS) increased at a CAGR of 53%.
ServiceNow already serves about 80% of the Fortune 500, but it still expects to generate at least $16 billion in revenue in 2026. That implies its revenue will grow at a CAGR of more than 22.5% from 2021 through 2026.
ServiceNow stock isn't cheap at 14 times this year's sales, but it could maintain that premium price-to-sales ratio if it hits its long-term target. If that happens, its stock could easily double or triple by the end of 2026.
2. Salesforce
Salesforce is another cloud-based services company that streamlines tasks for large companies. Its core platform for CRM (customer relationship management) enables companies to carefully track and analyze their individual customer relationships. It also provides services for sales, marketing, analytics, and data visualization purposes.
Between fiscal 2017 and fiscal 2022, which ended this January, Salesforce's revenue increased at a CAGR of 26% from $8.4 billion to $26.5 billion. Its adjusted EPS grew at a CAGR of 36%, even as it made several large acquisitions to expand its cloud-based ecosystem.
Like ServiceNow, Salesforce has set firm targets for its long-term growth. It believes its annual revenue will surpass $50 billion by fiscal 2026, which implies its revenue will increase at a CAGR of 17% over the next four years. Salesforce's stock isn't expensive at six times this year's sales, and it could net a higher valuation as it marches toward its $50 billion goal.
So I believe Salesforce's stock could double by the beginning of calendar 2026. If it can continue growing its revenue at a CAGR of 15% to 20% over the following four years, it could easily triple by 2030.
3. MercadoLibre
MercadoLibre is the largest e-commerce company in Latin America. It operates across 18 countries, but it generates most of its revenue in Brazil, Argentina, and Mexico. It also operates Mercado Pago, one of the region's largest digital payment platforms.
MercadoLibre's revenue grew from $844 million in 2016 to $7.1 billion in 2021, representing a staggering CAGR of 53%. Its total unique active users rose from 74.2 million in 2019 (the first year it disclosed that metric) to 139.5 million in 2021. Profit growth remained uneven as it expanded its ecosystem, but its gross margins have consistently expanded as economies of scale kicked in.
MercadoLibre hasn't set any ambitious long-term growth targets, but the expansion of Latin America's e-commerce market gives it plenty of room to grow. According to Morgan Stanley, the region's e-commerce penetration rate could double from 8% in 2021 to 16% in 2025.
By comparison, China and the U.S. both have e-commerce penetration rates of more than 20%. If Latin America catches up to those mature markets, MercadoLibre's stock could easily double or triple by 2030 -- if it fends off its smaller competitors and remains the region's e-commerce leader.
