The Nasdaq 100 index plunged 33% last year. But it has done the polar opposite in 2023, soaring by 38%, and we're not even halfway through the year. If there's one takeaway from this situation, it's that picking short-term movements in the stock market can be next to impossible.
But if you zoom out and look at the past 10 years, the Nasdaq 100 has delivered a total gain of 418%, or 18% per year on average. In fact, history shows the longer you remain invested in the market, the higher the probability you'll generate a positive return.
Buying an index fund (which is sometimes called passive investing) can be a great way to capture those steady, reliable gains. But investors with a more aggressive risk profile can outperform the broader market if they manage to pick the right individual stocks.
That's easier said than done, but there are two companies growing fast enough right now to warrant higher-than-average long-term returns. I actually think their stock prices have the potential to soar fivefold over the next 10 years, which would turn an investment of $200,000 into $1 million.
But don't be deterred by those large numbers -- investors of all experience levels can buy these stocks right now.
Image source: Getty Images.
1. Uber: The best growth might still be ahead
Uber's (UBER -0.38%) business has been on a roller-coaster ride over the past few years. Its ride-hailing segment entered 2020 with record momentum, which was quickly derailed when the pandemic struck. The company pivoted to focus on food delivery which boomed throughout 2020 and 2021, and is still a key driver of revenue today.
But now that society has mostly returned to normal, Uber's ride-hailing segment has once again become the company's leading source of revenue. The ride-hailing industry as a whole is also entering a new era thanks to the dawn of the autonomous robotaxi. Last year Uber signed a 10-year deal with Motional, which is a joint venture between South Korean car manufacturer Hyundai and mobility technology company Aptiv (APTV 1.54%).
Uber brings its 130 million monthly users to the partnership, Hyundai brings its Ioniq 5 electric vehicle, and Aptiv is contributing its self-driving technology, which can operate entirely independent of human assistance. Together, the companies could create the largest autonomous ride-hailing network in the world.
The financial estimates for this emerging industry are already mind-boggling. Cathie Wood's Ark Investment Management says autonomous ride-hailing companies could generate $4 trillion in annual revenue as soon as 2027, and since Uber already has a 75% market share in the U.S. ride-hailing industry, its opportunity is enormous.
Based on Uber's $33.8 billion in trailing 12-month revenue and a current market capitalization of $86 billion, its stock currently trades at a price to sales (P/S) ratio of 2.6. Assuming that P/S number remains constant for the next 10 years, Uber would have to grow its revenue by 17.5% every year between now and then to justify a fivefold increase in its stock price.
Uber is crushing that pace at the moment. Its annual revenue has increased by 32% each year for the past five years, even in the face of a pandemic and a challenging economic climate. But with the potential tailwind of autonomous driving now looming, Uber should have no problem generating the growth necessary to help turn $200,000 into $1 million by 2033.
2. Bill.com: A small-business savior with tremendous potential
Software companies were among the hardest-hit during the market sell-off last year, mostly because the majority of them aren't profitable and investors perceived them as risky bets during a tough economic time. Bill.com (BILL 3.21%) was one of the casualties, and its stock remains 67% below its all-time high. But the company has shifted its focus toward reaching profitability, while still increasing its revenue at an incredibly brisk pace.
Bill.com operates a series of cloud-based platforms designed to help businesses manage their cash flow. Its flagship digital inbox streamlines the accounts payable process by storing all incoming invoices neatly in one digital inbox, where business can pay them with one click. It also integrates with most leading bookkeeping platforms, so each transaction is automatically recorded in the books.
Bill.com acquired Invoice2go in 2021, which offers a portfolio of tools to manage the other half of the equation: accounts receivable. It allows businesses to create and issue invoices to customers, and track incoming payments. Plus, Bill.com also owns Divvy, which helps with budgeting and expense management.
Overall, 455,300 businesses are using at least one of Bill.com's platforms, and the company says 4.7 million businesses are in its ecosystem. In other words, they've used Bill.com to either make or receive a payment, which is important because the company earns the majority of its revenue through transaction fees.
Bill.com stock currently trades at a P/S ratio of 12.1, and as I touched on earlier, a 17.5% annual revenue growth rate is the magic number it needs to soar fivefold over the next 10 years. It's obliterating that mark: Between fiscal 2018 (ended June 30, 2018) and fiscal 2022 (ended June 30, 2022), the company's revenue increased at a compound annual rate of 77%!
It's expected to rise at a marginally slower pace of 62% in fiscal 2023, because the company is focusing on bringing its bottom line closer to profitability by cutting costs. In the fiscal 2023 third quarter (ended March 31), its net loss narrowed by more than half (year over year) to just $31 million, which is a positive sign its strategy is working.
Over the long term, Bill.com estimates its addressable market includes 70 million business customers completing $125 trillion in payments each year, so it has barely scratched the surface of its opportunity. That should support the company's case as it works to deliver a fivefold return by 2033.
