Over long stretches, the S&P 500 typically gains nearly 10% on average per year. That compound average annual growth rate swings wildly, of course. Last year the market fell 18%, for example, after soaring by 29% in 2021.
Those moves play a huge role in the path that any single stock takes, but the performance of an underlying business can help a stock deliver far higher returns. So let's look at two standout performers, National Beverage (FIZZ -2.29%) and Nike (NKE -0.74%), which gained 300% or more in the past decade.
1. National Beverage competes with giants
In fiscal 2012, National Beverage booked $630 million of annual sales, making it a tiny player in the carbonated beverage niche. It had a few valuable characteristics that made it look different from companies like Coca-Cola, though.
The company's popular La Croix brand allowed it to sell far more nontraditional sparkling drinks than peers in the cola industry. National Beverage also had pricing power that was an outgrowth of its strong customer loyalty and its focus on innovative products.
This proved extremely valuable over the past decade. Despite a flood of competition into the sparkling water, juices, and energy drink markets, National Beverage nearly doubled its annual sales, and in 2022 crossed the $1.1 billion mark.
KO operating margin (TTM) data by YCharts. TTM = trailing 12 months.
The company fares well in the earnings department, too, with its 15% operating profit margin landing it below Coca-Cola but above PepsiCo. Holding its own against these larger rivals has allowed National Beverage to deliver market-beating returns to patient shareholders.
2. Nike can just do it
Nike, a dominant player in the footwear and athletic apparel industry, was no hidden gem back in 2012. But its growth over the past decade shows what can happen with a leading company in an expanding sector.
Annual revenue in 2022 was just shy of $47 billion, compared with $24 billion a decade earlier. The company generates over $6 billion of net income today, too, up from $2 billion back in 2012. That earnings spike is being powered by several factors, including a shift toward direct-to-consumer sales.
By cutting out retailers like Foot Locker, Nike is capturing a higher percentage of revenue as profits, allowing its gross margin to climb toward the plus-50% rate that Lululemon Athletica has.
Nike has gone through several weaker sales periods in the past decade, most recently in late 2022. But it always seems to return to growth mode, with help from a steady stream of innovative product releases.
As the company continues selling more merchandise directly to its customers, and as the athleisure and footwear industry keeps expanding, the outlook is bright for Nike to add to the market-beating returns it has generated for investors in recent years.
There's no guarantee that Nike, or any other stock, will beat the market. Industry challenges, competitive threats, or operating issues can threaten an otherwise solid business.
But the paths taken by Nike and National Beverage over the past decade show how investors can improve their odds by focusing on companies with strong brands and a track record of leading their industries with innovation.
