Investors looking to build wealth through the stock market don't have to roll the dice on complicated tech companies whose offerings and competitive situations they don't fully understand. There are plenty of companies with easy-to-grasp business models that can help turn small initial investments into large nest eggs over time.
Online marketplace Etsy (ETSY 0.34%) and athletic apparel brand Lululemon Athletica (LULU 1.31%) are good examples. A $1,000 investment five years ago split evenly between Etsy and Lululemon would currently be worth $2,835.
Data by YCharts.
Here's why Etsy and Lululemon might double again in the next five years.
1. Etsy
Etsy is a simple company with a large following -- 95.5 million active buyers and 7.9 million active sellers. It's still a small player in the global e-commerce market, with just over $3 billion in quarterly gross merchandise sales on its platform. But most importantly for investors, the stock is attractively valued after a recent dip.
Trading at a forward price-to-earnings ratio of 21 -- which is below the average for S&P 500 companies -- Etsy looks undervalued. The discount can be attributed to Wall Street's concerns about its recent declines in gross merchandise sales. However, Etsy's unique position in the market as a destination to find the types of items people can't find at other retailers suggests it has a competitive advantage that should drive more growth over the long term.
Despite macroeconomic headwinds, the company grew its revenue by more than 10% year over year in the first quarter after raising transaction fees. It could obviously do much better in a stronger e-commerce market.
Internal improvements the company made to its search engine should also help Etsy post stronger growth. Management has been focused on making search more intuitive by using machine learning and artificial intelligence. Wall Street may not fully appreciate how these efforts could pay off with increased buyer frequency in the years to come.
Finally, Etsy is operating with a long-term tailwind at its back. According to an eMarketer study, the e-commerce market is expected to grow at rates of about 10% annually through 2025. It takes compound annual growth of 15% to double your money over a five-year period. Etsy's average annualized revenue growth over the last 10 years was 42%, so the business won't even have to grow as fast as it did before the pandemic for investors to do well.
As the e-commerce market recovers, Etsy's gross merchandise sales should accelerate, which should also accelerate Etsy's revenue growth. With the stock trading at a discount, the chances of an investment in Etsy doubling in value by 2028 are favorable.
2. Lululemon Athletica
Lululemon has been on a steady upward trajectory for many years. Its focus on designing functional apparel for workouts and everyday wear has been a successful formula for growth.
The company crossed $8 billion in annual revenue in its fiscal 2022 and continues to go strong. Revenue increased again by 24% year over year in its most recently reported fiscal quarter. It's well on its way to achieving management's goal of crossing $12 billion in annual revenue by 2026 -- double its revenue in 2021.
Lululemon has been in business for 25 years, but it's still a relatively small player in the athletic apparel industry. Top brands can grow for decades because of the fragmented nature of the marketplace. Lululemon can leverage its brand power through marketing and innovative styles to gain market share.
But most importantly, the athletic apparel segment has been one of the most consistent performers in the apparel space for many years. Lululemon experienced a temporary pause in growth during the pandemic, and it hasn't missed a beat during the recent period of high inflation.
Lululemon has navigated the choppy economic environment over the last year well. This is yet another sign of just how strong the brand is and why investors should consider adding this top apparel stock to their portfolio.
The stock is not cheap, trading at a forward price-to-earnings ratio of 30, but that's considered fair for a company growing this fast. Considering Lululemon's momentum and opportunities to grow into a global athletic wear brand, the stock should continue to grow right along with the business, which could easily lead to its share price doubling in five years.
