Great businesses can continue growing through good times and bad. These are the types of stocks you want to own for the long term, as they will churn out higher revenue and net income over time, leading to a higher share price. Patience is key as management takes time to build the business, reinvest earnings, and execute business development initiatives.
However, not all growth stocks are built the same. Investors must focus on those with recognizable brands, significantly long runways for further growth, identifiable catalysts that can enable that growth to play out, and those that have built up significant market share in their respective industries. These attributes are not always easy to find, but they are essential if you are looking for stocks you can own over years or even decades.
Here are three growth stocks I will not hesitate to add to my investment portfolio.
Image source: Getty Images.
Roblox
Roblox (RBLX 1.35%) operates a platform where people can come together to create shared online communities and spaces for interaction, gaming, and other activities. These experiences are built by "creators" who form part of the Roblox community and help contribute recurring income to the business every month. The company witnessed strong top-line growth from 2020 to 2022, with revenue more than doubling from $923.9 million to $2.2 billion.
Although Roblox is still incurring losses, the business has generated an average positive free cash flow of $312.5 million over the last three years. Daily active users (DAUs) increased nearly fourfold from 15.8 million in the first quarter of 2019 to 58.8 million by the fourth quarter of 2022. Hours engaged also soared more than fourfold from 2.97 billion to 12.8 billion over the same period.
This momentum has carried forward into 2023, with the company reporting a 22% year-over-year jump in revenue to $655.3 million. Bookings rose 23% year over year, with both DAU and hours engaged rising by 22% and 23% year over year, respectively, to 66.1 million and 14.5 billion.
Roblox has just announced a program to help scale up its brand and introduce a global advertising system to its platform. This new partner program has signed up early adopters, such as Century Games and Dentsu, with expertise in creating 3D immersive content and has made minimum spending commitments for the next 12 months.
In another attempt to broaden its content slate, Roblox announced that eligible creators could build experiences featuring mature content for users 17 years and older. This expansion should target older audiences and help to bring more users onto the company's platform.
MercadoLibre
MercadoLibre (MELI 3.09%) is an e-commerce giant dominating the Latin American ecosystem. The company offers a slew of services on its platform, including an online payments system (Mercado Pago), a logistics solution (Mercado Envios), and credit services (Mercado Credito). The company saw accelerated growth during the pandemic as the wave of digitalization pushed many in the region to embrace e-commerce and digital payments, thereby boosting MercadoLibre's financial and operating metrics.
The number of payment transactions jumped more than sixfold from 838 million to 5.5 billion from 2019 to 2022. Over the same period, gross merchandise volume (GMV) went from $14 billion to $34.4 billion, while total payment volume (TPV) more than quadrupled from $28.4 billion to $123.6 billion. Unsurprisingly, revenue from 2020 to 2022 jumped from $4 billion to $10.5 billion, with the e-commerce company generating positive free cash flow for all three years.
The first quarter of 2023 saw no slowdown in MercadoLibre's growth. Revenue climbed 35.1% year over year to $3 billion, while net income more than tripled year on year to $201 million. Both GMV and TPV also saw year-over-year growth of 23.1% and 46.1%, respectively, to hit $9.4 billion and $37 billion.
The company has now positioned Mercado Pago as a full-service digital account and launched a marketing campaign in Brazil to boost awareness. It has also opened a new distribution center in Mexico -- its seventh in the country -- that can expect to serve 3,000 sellers. CFO Pedro Arnt also anticipates further incremental investments to build up the company's logistics capabilities in Mexico, which is its third-largest revenue contributor.
Ulta Beauty
Ulta Beauty (ULTA -0.40%) is a cosmetics retailer that sells a wide variety of beauty products, such as cosmetics and skin and hair care products, across a range of price points. The company operates a total of 1,359 retail stores across 50 U.S. states and sells its products through its e-commerce platform.
Ulta Beauty saw steady growth in both revenue and net income from its fiscal 2019 (it has a Jan. 31 year-end) to fiscal 2023, with an expected dip in fiscal 2021 because of the effects of the pandemic. Sales climbed from $6.7 billion to $10.2 billion over the four-year period, with net income nearly doubling from $658.6 million to $1.24 billion. From 2019 to 2023, ULTA Beauty also increased its store count from 1,174 to 1,355.
The company's loyalty program (Ultamate) has been a hallmark of its success, with member numbers growing from 31,800 to 40,200 over a four-year period ending in fiscal 2023. Around 95% of the company's sales are made by members, with information on purchase patterns and preferences providing Ulta Beauty with a strong database it can leverage to gain consumer insights. The first quarter of fiscal 2024 saw continued growth -- sales rose 12.3% year over year to $2.6 billion, with net income inching up 4.7% year over year to $347 million.
Ulta Beauty exists in a large and fragmented market, and the company estimates that the U.S. beauty products market alone is worth $104 billion, giving it significant room for further growth as it continues to engage its customers.
