There's a lot you could buy with $300: a smartwatch, a plane ticket -- even 60 crates of eggs at the current price. But in the stock market, that relatively small sum of money could help set the stage for impressive returns if invested in the right companies over a long enough time.
Let's explore why Tesla (TSLA -1.06%) and Membership Collective (SHCO 0.37%) could turn your money into significantly more.
Image source: Getty Images.
1. Tesla Motors
Up 93% year to date, Tesla hit the ground running in 2023. But with shares still trading at around half of their all-time high, there is still room for investors to buy the dip.
The automaker's massive scale and profitability make it a great way to bet on the increasingly competitive electric vehicle (EV) industry. According to research from Bloomberg, more than half of the passenger cars sold in the U.S. will be electric by 2030.
Tesla is not the only major automaker tackling this opportunity. But unlike rivals such as Ford or General Motors (which are transitioning to electric vehicles), it won't cannibalize an existing gas-powered lineup. Tesla's profitability also gives it more room to fight price wars against loss-making pure-play rivals like Lucid or Rivian.
That said, Tesla's situation isn't all peaches and cream. In February, the company issued recalls for 360,000 vehicles over potential safety issues with self-driving software. But the problem will be fixed relatively quickly through a software update and doesn't change Tesla's long-term thesis.
Investors should look at Tesla as a way to bet on EV adoption -- with autonomous driving technology as a side dish, not the main course.
With a price-to-earnings (P/E) multiple of 50, Tesla stock trades at a premium to the S&P 500's average of 22. But the premium looks justified considering its strong moat and rapid bottom-line growth rate. Fourth-quarter net income surged 59% year over year to $3.7 billion.
2. Membership Collective Group
With its 2021 initial public offering, Membership Collective Group brought the world of exclusive private members' clubs into the light. The company offers a suite of hospitality experiences and products catering to the wealthy.
And while it has taken awhile for the business to get rolling, sustainable profitability could be just around the corner.
Originating from Britain's elite gentlemen's clubs, private members' clubs are social organizations where users must pay a membership fee for access. Membership Collective's club, Soho House, includes hotels, restaurants, and other entertainment options.
The company has also branched off into synergistic services such as Soho Home (a furniture brand designed to replicate the brand's aesthetic) and Soho Works, a co-working space designed for creative collaboration between members.
Business is booming. In the third quarter, the total number of members grew by 46% year over year to 211,351. New clients are spread around the globe, preventing saturation in any specific area. And with a wait list of 85,000, pent-up demand gives the company an economic moat that can be exploited through price hikes or member expansion if management sees fit.
With a price-to-sales (P/S) multiple of just 1.4, Membership Collective stock is surprisingly cheap for a fast-growing company. While it isn't profitable yet on a GAAP basis, the company's third-quarter adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) jumped 130% to $20.3 million. This figure adds back around $4 million in share-based compensation and $54 billion in foreign exchange losses, which are unlikely to be replicated.
The importance of a strong moat
Tesla and Membership Collective Group both enjoy sustainable competitive advantages over their peers. With its scale and profitability, Tesla is well positioned to come out on top amid rising competition in the EV industry. Soho House's massive wait list indicates unmet demand for its club, giving management a lot of operational flexibility. Both companies could generate excellent returns from a $300 investment.
