Stocks' price moves can be unpredictable in the short term. But building up a portfolio over the long term is relatively simple if you stick to investing in growing companies that are filling huge needs in the marketplace.
Airbnb (ABNB -1.52%), Vita Coco (COCO 7.92%), and Dutch Bros (BROS -4.12%) have reported solid growth in recent years, and appear poised to grow much larger in the years to come. Let's see why three Motley Fool contributors see them as magnificent growth stocks you'll want to buy and hold for the long haul.
Airbnb is going mainstream
John Ballard (Airbnb): Airbnb's business continues to report solid growth, but the stock is currently trading 21% below its initial public offering price. It has more than doubled its annual revenue since before the pandemic, and could double it again over the next five years.
Revenue grew 20% year over year in the first quarter, but excluding the impact of foreign currency changes, it posted a 24% top-line increase. Nights and experiences booked hit a record of over 120 million in the quarter. As the company stated in its earnings report, "Traveling on Airbnb is mainstream."
Indeed, Airbnb is becoming the default booking platform for travelers interested in places to stay that aren't the usual hotel chains. And its growth is spreading like wild in international markets. Cross-border stays to North America accelerated in the quarter, growing 34% year over year. Meanwhile, in Latin America -- Airbnb's fastest-growing region -- its nights and experiences booked metric has doubled over the last four years.
In China, Airbnb is posting strong growth while the economy is still recovering from pandemic-related headwinds, but now that its government has lifted travel restrictions, the company expects to see gradually increasing numbers of Chinese customers using its services to travel internationally. And there are numerous markets where Airbnb is still underpenetrated, including Brazil and Germany.
Most importantly, Airbnb is delivering healthy profits along with its exceptional top-line growth. Net income came in at $117 million in the quarter, up from a loss of $19 million a year ago.
Some investors will argue free cash flow is the best measure of profitability, and Airbnb looks even better on this metric. Over the last four quarters, free cash flow represented an impressive 44% of revenue, meaning the company is converting nearly half of every dollar of revenue into cash that can be reinvested in the business.
Airbnb appears to be reaching a tipping point. It's going mainstream, gaining momentum in its international expansion, and now has plenty of cash to continue improving its platform with new features -- it recently rolled out several updates with improvements that customers have been requesting.
The stock might be down, but the business is moving forward. That confluence of circumstances makes this a great opportunity to buy shares before the stock takes off.
An under-the-radar beverage stock
Jeremy Bowman (Vita Coco): Investors may not typically look to the beverage industry for growth, but it has featured a surprising number of high-performing stocks.
Most recently, Celsius Holdings has broken out with a line of energy drinks focused on wellness, and before that, Monster Beverage rode its energy drinks to big share price gains.
Starbucks has also been a winner, and of course, Coca-Cola and PepsiCo have been industry titans for generations.
One recent IPO that deserves a closer look from investors is Vita Coco, the maker of its eponymous coconut water, as well as a portfolio of healthy beverages that includes clean energy drink Runa, sustainable enhanced water Ever & Ever, and protein-infused water PWR LIFT. It also has a private-label business with retailers.
Among those offerings, Vita Coco, which comes in several flavors, is the company's star product, as the first-quarter earnings report shows.
Overall revenue rose 14% to $110 million in the quarter, driven by 17% growth in Vita Coco coconut water on volume growth in the mid-teens. The company was also profitable, with a net income of $7 million in the quarter. And its profitability has been improving.
Today, it owns the largest global coconut water brand, giving it an enviable position in the huge addressable market for healthy beverages.
Vita Coco shares are reasonably priced, trading at around 25 times its expected adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for the year, and the company should continue to grow as it expands distribution.
The path to success in the beverage industry has been proven before, and Vita Coco could be its next breakout stock.
A dip in this company's stock price presents a great opportunity
Jennifer Saibil (Dutch Bros): Dutch Bros is a small-but-growing coffee shop chain with locations across the Western U.S. It has grand plans to grow from its current count of 716 shops to 4,000 in about 10 years.
Its recent rapid expansion has generated high sales growth, although it's been slowing down. In 2022, sales increased by 48%, but in Q1 2023, sales growth was just 30% year over year. The company opened 45 new stores in the first quarter, a record, and plans to open 150 for the year. And its net loss contracted from $16 million in Q1 2022 to $9 million in Q1 2023.
There were a few disappointments in the Q1 update, which it delivered on May 9 -- among them, that same-store sales fell 2%, the second consecutive quarter when that metric declined. Management stressed that slide was in part due to the company's fortressing strategy, which involves launching several stores in a targeted area to create a presence and promote its brand. Clustering locations in that way can result in slightly lower sales at each store even as the company pulls in more sales overall and boosts brand awareness, which leads to even higher sales down the line.
Management reaffirmed its 2023 outlook for $950 million to $1 billion in sales and a low single-digit-percentage increase in same-store sales, which was positive.
Despite what was essentially a good Q1 report, especially considering the current macroeconomic conditions, the stock sold off by 11% on May 10, wiping out all of its year-to-date gains. Now, the shares trade at a price-to-sales ratio of only 2.
That selloff looks like an overreaction to me. Dutch Bros has incredible growth prospects and its results should improve when economic conditions ease. As such, this recent dip provides a great entry point for investors who might have been on the fence about buying shares.
