It takes time for growth stocks to reach their full potential. Investors with a long time horizon shouldn't be concerned about short-term fluctuations. Selling good stocks now means missing out on future growth. Besides, the "buy and hold" investment strategy considers the compounding effect, allowing your investment to grow as the business expands.

Therefore, I am never selling these two stocks whose business models have the potential to generate profitable returns over the long term. Each is part of a fast-growing industry. Demand for these businesses is not likely to wane any time soon. Let's find out why these are the ideal "buy and hold" investments now.

Three people outside a vacation rental cabin.

Image source: Getty Images.

1. Airbnb

The pandemic has emphasized the significance of travel. After people were confined at home for nearly two years as a result of the lockdowns, travel demand has increased sharply. However, investors are concerned that rising inflation will slow consumer spending on travel.

Nonetheless, the industry's long-term prospects are excellent. Besides, compared to conventional hotel experiences, Airbnb (ABNB -3.85%) offers a unique experience. It is an online marketplace that allows people to rent out their homes as vacation rentals, even in offbeat locations.

This moat has allowed Airbnb to not only boost revenue but also its profit margins in comparison to its hotel industry peers, as shown in the chart below.

Airbnb generated $8.4 billion in revenue in 2022, representing a 40% year over year increase. With $1.9 billion in net income, the company also had its first profitable year based on generally accepted accounting principles (GAAP). This is quite impressive for a consumer company during high inflation periods.

Chart showing Airbnb's operating margin beating that of several major hotel and booking companies.

ABNB Operating Margin (TTM) data by YCharts

In response to the increased demand for flexible and remote work, Airbnb announced a new effort -- Airbnb-Friendly Apartments -- in its fourth quarter. The company plans to help "long-term renters find apartments that they can part-time host on Airbnb." Airbnb's success can be attributed to its ability to cater to consumers' preferences for unique vacation destinations and new experiences. Big hotel chains do not find it profitable to operate in less traveled areas, which is to Airbnb's advantage. 

In addition, the company has a strong balance sheet. It ended the year with $3.4 billion in free cash flow, which should allow it to scale its operations this year. Though challenges like global pandemics could affect the travel industry in the short term, demand for travel will inevitably return.

2. Green Thumb Industries

The cannabis industry, like any other emerging industry, is unquestionably risky. However, one advantage of evolving industries is that they are made up of companies with a lot of room to grow. The legal situation in the U.S. may have enticed investors to sell cannabis stocks. However, this does not imply that the market is not expanding. More and more states are legalizing cannabis in the U.S. every year.

With the growing market, Illinois-based multi-state player (MSO) Green Thumb Industries (GTBIF 5.04%) is aiming to be one of the top contenders. In a fiercely competitive industry, the company has quadrupled its revenue from $216 million in 2019 to $1 billion in 2022, thanks to its expanding presence in key state markets. 

Its total store count has increased from 39 in eight states in 2019 to 77 in 15 states.  While profitability is still a challenge for many pot companies, Green Thumb is one of the very few to be consistently profitable. It has reported positive GAAP net income for nine consecutive quarters. In its most recent fourth quarter, the company also reported an adjusted net income of $12 million. Revenue increased 6% year over year to $259 million.

There has been no progress in U.S. federal cannabis legalization yet. However, industry experts predict that cannabis could be fully legalized in Pennsylvania, Florida, Maryland, Ohio, and Minnesota this year. Green Thumb operates a significant number of stores under the Rise brand in each of these states. The company is also financially secure enough to enter new markets, having ended the year with $178 million in cash.

Management believes cannabis demand is still strong as unit sales for the overall U.S. market increased by 28% in 2022, according to BDSA, a market research firm. I think management could be correct. Marijuana is regarded as a consumer staple product. As a result, despite rising inflation, most of the demand for marijuana may not be lost.

The global cannabis market is expanding at a breakneck pace and is expected to be worth $84 billion by 2027. Meanwhile, the European cannabis market could grow at a compound annual rate of 61% by 2028, reaching $14 billion in value. This implies a lot of scope for Green Thumb, not just in the U.S., but globally.

Outstanding prospects, yet risky!

Note that both these stocks belong to high-growth industries that carry some risk. Green Thumb is cheap now, trading at a price-to-sales ratio of 2. Even Airbnb is undervalued now, allowing investors to purchase these stocks at a discount. Though I would never sell these stocks, I would advise new investors to be cautious when investing in them by diversifying their portfolio with some stable stocks as well.