It's difficult to predict precisely what the world will look like in five years. But here is a prediction that seems reasonably safe; in half a decade, equity markets will be up from where they are today. The historical record strongly suggests that this forecast will come to pass. And while the market is currently experiencing a downturn, it's a good time to buy shares of companies that can ride out -- or even outperform -- the next bull market.
Let's look at two stocks that have a chance to double in the next five years: Exact Sciences (EXAS -0.46%) and Snap (SNAP -2.72%). These two companies seem a bit risky, but they have plenty of upside potential.
1. Exact Sciences
Exact Sciences develops diagnostic and screening products focused on cancer screening. The company is best-known for Cologuard, a non-invasive test for colon cancer. During the pandemic's peak, it also made money selling COVID-19 diagnostic tests. These two business units have moved in opposite directions lately.
Exact Sciences' screening revenue, generated primarily from Cologuard, keeps rising. The company's screening revenue in the second quarter increased 34% year over year to $353.9 million and total revenue jumped by 20% to $521.6 million. Excluding COVID-19 diagnostic testing, the company's top line would have increased by 26%.
Revenue from COVID-19 testing has been somewhat volatile and recently declined, which partly explains why Exact Sciences' top-line growth rates have dropped.
EXAS Revenue (Quarterly YoY Growth) data by YCharts. YOY = year over year.
But the company's screening segment is still making headway. Experts recommend regular screenings starting at age 45 for those at average risk of developing the disease (i.e., those with no family history of the illness or other factors increasing their risk). Yet, more than 60 million eligible patients remain unscreened.
The consequences are devastating. With 53,000 annual victims, colon cancer is the third-leading cause of cancer death in the U.S. Exact Sciences estimates an $18 billion opportunity in this market, which dwarfs its trailing 12-month revenue of $1.94 billion.
The company is also developing multi-cancer screening tests, a market with a $25 billion opportunity. Exact Sciences is not profitable yet. In the second quarter, it reported a net loss of $166.1 million, compared to the net loss of $176.9 million recorded in the year-ago period. Slowing revenue growth and red ink on the bottom line aren't a good combination, particularly in today's environment.
But Exact Sciences stock could explode as it makes headway in the massive multi-cancer screening market while it remains a leader in colon cancer screening. This healthcare company could handsomely reward its shareholders in the next five years.
2. Snap
Snap, the parent company of social media app Snapchat, has had a volatile year. The latest development for the company was its third-quarter earnings report, which Wall Street did not receive well. Snap's revenue for the period came in at $1.1 billion, 6% higher than the prior-year quarter. Snap's revenue growth rates have plunged over the past year.
SNAP Revenue (Quarterly YoY Growth) data by YCharts. YOY = year over year.
The company blamed its lackluster performance during the quarter on a decrease in ad spending driven by economic challenges and competition. On the bright side, Snap continues to grow its user base; its daily active users (DAUs) increased by 19% (YOY) to 363 million during the period. A growing user base is critical to Snap's plans. The company recently announced its intentions to focus more on profitability moving forward.
Snap is still losing money. In the second quarter, its net loss per share was $0.22, compared to its net loss per share of $0.05 in the third quarter of 2021 But the death of the "growth at all costs" mindset is a good sign. There is no question that the challenging macroeconomic environment is harming Snap's business, but once these challenges subside, Snap's revenue growth should benefit.
After all, it remains among the most popular social media platforms, particularly among younger generations. Snap reaches 90% of those between the ages of 13 and 24 in more than 20 countries and 75% of people between 13 and 34. Businesses looking to place targeted ads specifically to reach this demographic can hardly find many platforms that are better-suited for the task. Further, several initiatives could help boost Snap's revenue.
For instance, the company released a premium subscription feature, Snapchat+, that charges $3.99 per month and has already reached more than 1.5 million users as of the third quarter (the service was first announced in late June). That's before we get into Snap's other opportunities, including those in augmented reality.
Snap may be encountering issues, but the company's stock dropping well below its initial public offering price of $17 per share is, in my view, way overdone. Snap has a chance to turn things around and substantially improve its performance on the stock market in the next few years.
