Trading at high respective forward price-to-earnings (P/E) ratios of 69, 94, and 40, MercadoLibre (MELI 3.09%), Progyny (PGNY -1.42%), and Doximity (DOCS 0.97%) may not scream "we are the best stocks to invest $10,000 in right now." However, each company's improving profitability, dominance within their niche markets, and stellar revenue growth rates should have investors looking past a seemingly "premium" valuation.
Analysts expect this trio to deliver about 20% to 35% sales growth in the current year -- let's explore why these three companies make for a perfect $10,000 basket of stocks to buy and hold forever.
1. MercadoLibre
Up 43% year to date and nearly 1,000% over the last decade, Latin American fintech and e-commerce behemoth MercadoLibre boasts a market capitalization, or company price tag, of over $60 billion. Despite its recent rally, MercadoLibre has several long-term growth drivers still operating in its favor.
First, even with the stock's rebound this year, its valuation on a price-to-sales (P/S) basis has only increased slightly, from about 4.5 to 5.5, which remains well below it's historical average.
Data by YCharts.
MercadoLibre reported a blistering 58% revenue growth rate (excluding foreign-exchange impacts) in its first quarter. Furthermore, the top line gains translated into strong free cash flow (FCF) of $770 million, good for a FCF margin of 25%. While this FCF figure can be incredibly lumpy at times, it adds to the company's $3.5 billion cash hoard, enabling it to continue funding new growth initiatives.
One of the most straightforward growth runways remaining for MercadoLibre is its expansion within Latin America. While it has a presence in 18 countries, about 95% of its sales come from Brazil, Argentina, and Mexico -- and roughly 52% come from Brazil, alone.
Taking a measured approach to expansion, CFO Pedro Arnt explained that the company would gradually continue investing in Chile, Colombia, and Peru as their markets mature. While it may take years or even decades for these investments to pay dividends, this steady growth plan should work well for buy-and-hold investors.
MercadoLibre may trade at almost 70 times next year's earnings, but its price-to-free cash flow ratio is only 17, meaning its precise valuation probably lies somewhere in between. However, with analysts expecting 32% revenue growth in the year ahead, MercadoLibre's remaining growth runway in its core markets and new countries offers decades-long upside that could make the current valuation a bargain.
2. Progyny
One in 6 people are now affected by infertility, and this number has worsened from 1 in 8 just four years ago. Progyny's fertility-benefits management services aim to help with these heartbreaking statistics. By providing its Smart Cycle and Rx solutions to 379 employers (clients) and their 5.3 million employees (members), Progyny has seen rapid adoption of its large network of fertility treatments and providers, as highlighted by its spectacular sales growth in recent years.
Data by YCharts.
As many enterprises look to attract and retain top talent in today's tough hiring environment, Progyny's services are an attractive offering to employees. Furthermore, the company's benefits deliver better pregnancy rates, lower miscarriage rates, and higher live birth rates than national averages, providing a cost savings of 25% to 30% to employers, according to the company.
Members give Progyny a net promoter score (NPS) of 82 and 79 for its fertility and Rx benefits, respectively. Ranked on a scale of -100 to 100, an NPS measures how likely a customer is to recommend a product to a friend, with a positive score showing a successful product -- making Progyny's high score excellent.
Trading at a forward price-to-earnings ratio of 94, the company isn't fully optimized for profits, so Progyny could quickly grow into this valuation if it continues to efficiently scale. And if its most recent quarter is any indication, investors should pay attention.
Posting 50% sales growth in the first quarter, the company saw gross profits rise 78%, while its net margin more than doubled year over year to 6.8%. Aiming for 32% sales growth in 2023 and with its steadily scaling operations, Progyny looks like a phenomenal stock to hold for the long haul as it continues adding clients in each new industry it enters.
3. Doximity
Considered the "Bloomberg for physicians" by its CEO Jeffrey Tangney, Doximity's healthcare-focused platform is already used by 80% of physicians and 90% of graduates. Generating frequent usage across this valuable network, Doximity's users can scroll through its news feed to continue their education, set schedules for their staff, make calls to their patients, or e-sign and e-fax documents.
The company has the attention of the vast majority of a physician population that accounts for roughly $3 trillion in annual healthcare spending. Its platform is a no-brainer advertising opportunity for pharmaceuticals and hospital systems. Led by this must-have value proposition, Doximity has seen impressive sales growth in its short time as a public company.
Data by YCharts.
However, thanks to a fairly brutal market for advertising across most of 2022 and early 2023, Doximity's growth has decelerated, and its stock price has suffered as a result.
Despite this drop, it's worth noting that the global ad-spend market only grew 8% in 2022 -- less than one-third of Doximity's growth rate that year. Furthermore, the company boasts a stunning 41% FCF margin.
Trading with a price-to-FCF ratio of 40, Doximity is close to its all-time low for that metric. On top of this, the company still has less than 5% penetration for U.S. healthcare professional marketing spend and is expected to grow sales 20% in 2023. This combination makes it a top stock to buy right now.
