Last year was brutal for many investors. The major averages had their worst year since 2008. Many stocks have been cut in half or more. That means they need to at least double to get back to where they were. Of all the stocks that are down at least 50%, Shopify (SHOP +8.34%), Trex (TREX 1.02%), and Align Technology (ALGN +1.11%) are three that have a great chance at doubling your money in the foreseeable future. Here's why.
NASDAQ: SHOP
Key Data Points
1. Shopify
Some companies saw a pronounced spike in growth during the pandemic. In hindsight, the temporary nature of that jump is obvious. It wasn't while it was happening. To his credit, Shopify CEO Tobi Lütke owned up to his miscalculation in a July 2022 letter to employees announcing the layoff of about 10% of staff. The stock has lost three-quarters of its value from the peak. But that could represent an opportunity to own one of the most important players in e-commerce. The same can't be said for other well-known beneficiaries of the pandemic.
SHOP Revenue (Quarterly YoY Growth) data by YCharts
Shopify powers businesses -- it calls them merchants -- by offering an easy way to create an online presence. Its seamless integration of payments, shipping, and a marketplace of third-party applications helps companies from mom-and-pop shops to global brands like Tesla and PepsiCo. It focuses on delivering simple tools to go all the way from creating a business to marketing and growing it globally. It is laser-focused on helping its merchants achieve success.
That approach helped it claim 10.3% of e-commerce sales in the U.S. by 2021, according to research firm eMarketer. That ranks second behind Amazon's 41%. The massive shift online during 2020 and 2021 may have created unrealistic expectations for long-term growth. But there is still plenty of upside. Another report from eMarketer projects retail e-commerce sales growth to hover between 8% and 10% over the next few years. Merely doubling the low end of that modest rate -- Shopify posted 47% growth in the year before the pandemic and 22% in its most recent quarter -- would double revenue in less than five years. The economy may have its ups and downs in between. But that seems like a reasonable bet to make.
2. Trex
Trex makes outdoor products like decking and railing with reclaimed wood fibers and recycled plastic film. Its journey to this list is straight-forward. As houses appreciate in value and residential construction booms, homeowners and builders create outdoor living spaces. Sprinkle in a pandemic where the safest way to gather was outside and you have the recipe for rapid growth. Now that interest rates are rising and the housing market is slowing down, distributors like Home Depot & Lowe's aren't ordering as much. That's caused inventory to spike and sales to drop.
TREX Inventories (Quarterly) data by YCharts
After climbing more than 300% off the March 2020 lows, shares are down 64% from their peak. The round trip has the stock almost exactly where it was before anyone had ever heard of COVID-19. That's a gift for investors.
The near term may be cloudy, but the long term is crystal clear. Trex is the category leader. Its primary competition is wood, which it outperforms. And according to management, 38% of home improvement spending is going toward outdoor living. That's the fastest growing segment.
With almost no debt and high returns on invested capital, the company will be around when the current economic malaise lifts. Analysts are predicting declining sales this year and next. So it may take a while. But when it does, expect Wall Street to bid shares back up to previous highs.
3. Align Technology
Fixing crooked teeth is not child's play. But children and adolescents do make up about two-thirds of the 21 million people who get their teeth straightened every year. Many of those young people still choose to get braces instead of using clear aligners. That's why despite holding an estimated 75% share in clear aligners, Invisalign captures only about 10% of the total market.
Trailing-12-month sales climbed to just over $4 billion earlier this year before growth slowed. No one in the industry is dodging the slowdown. But Align's strength since the beginning of 2020 is unmistakable.
ALGN Revenue (TTM) data by YCharts
In the past year, investors have gotten nervous. Like many companies, Align was flying high on a wave of accelerated growth during the pandemic. It has crashed back to earth. Since the beginning of 2021, inventory has climbed more than twice as fast as sales and the stock is 66% off of its high. But the picture isn't nearly as bleak when you take the long view.
The clear-aligner market is expected to grow almost 30% for the rest of this decade. And the company has no debt. With the stock trading at a price-to-sales (P/S) ratio near the trough of the last decade, achieving even half of that projected industry growth should double revenue in five years. If the P/S ratio returns to its pre-pandemic average shares would double again. Although nothing in investing is guaranteed, that is an excellent risk-reward proposition for those who can remain patient.
