Equity markets generally move upward over the long run, but not all individual stocks do. Earning solid returns over a decade or more requires purchasing shares of excellent companies that consistently deliver strong financial results. Fortunately, there are many options to choose from among the hundreds of publicly traded corporations.
Two companies that look particularly attractive for long-term investors are Adyen (ADYE.Y -1.57%) and Visa (V -0.23%). Let's see why these corporations can turn an initial capital of $15,000 into $50,000 in 10 years -- for those counting at home, that amounts to a compound annual growth rate (CAGR) of 12.8%.
1. Adyen
Making digital payments online or in person seems straightforward. Customers simply have to swipe their cards at a point-of-sale system (or a payment gateway, the online equivalent thereof). However, there are several intermediaries between the customers and their banks, which ultimately issue the payments. The entire process is complex enough, but Adyen simplifies it for its customers by combining several of those intermediaries.
The result is that it allows merchants to accept multiple payments across various countries and currencies, all in a single integrated platform. A great sign of how valuable the company's services are is that its list of clients includes some notable multinational corporations, from Uber to eBay and Spotify, among many others.
Another clue is that Adyen's financial results have generally been excellent. Last year, the company recorded a processed volume of 767.5 billion euros ($843.7 billion), an increase of 49% year over year. The company's net revenue of 1.3 billion euros ($1.43 billion) was 33% higher than the previous fiscal year. Adyen's net income of 564.1 million euros ($620.1 million) was also up 20% year over year.
Perhaps one negative aspect of Adyen's 2022 financial results was its earnings before interest, taxes, depreciation, and amortization (EBITDA) margin of 55% -- which is still excellent -- was down from the 63% it was in 2021. But there is a good explanation: Adyen has been ramping up hiring, even as many other tech giants are doing the opposite, to invest in the future.
So what can we expect in the next decade for the fintech specialist? First, most of Adyen's revenue comes from Europe -- the company is based in the Netherlands. However, it has been making steady headway in other places, including North America and the Asia Pacific region. In 2022, Adyen's revenue in these two regions grew faster than in any other.
There is still plenty of room to grow in the global fintech market, as the industry is on a major upward path. Furthermore, Adyen arguably benefits from high switching costs, a powerful economic moat that should allow it to keep most of its clients. Adyen expects to grow its revenue at a CAGR in the mid-twenties to the low-thirties in the mid-term -- which is pretty impressive for a company of this size -- and aims to grow its EBITDA margin back up to 65%.
With excellent revenue growth, strong margins, and growing net profits, Adyen has what it takes to deliver the returns that will turn $15,000 into $50,000 in the next decade.
2. Visa
Visa needs no introduction: It is one of the leading payment networks in the world. People are familiar with the company's brand, since millions of credit cards bearing its logo are circulated. Visa doesn't have many direct competitors. It essentially benefits from a duopoly with Mastercard. That's great news for investors considering the stock, especially since it will be difficult to topple Visa off its pedestal.
The company benefits from a competitive advantage called the network effect, which refers to the value of the services it provides increasing with use. In Visa's case, the more merchants are plugged into its payment network, the more it attracts customers, and vice-versa. That explains Visa's growing revenue and earnings over the past decade and why it has delivered market-beating returns throughout this period.
But past performance doesn't guarantee future results, so can Visa continue down (or up) the same path in the next 10 years? The answer is a resounding yes, as the company still has room to grow within its core business. That may sound a bit counterintuitive. Credit card transactions seem ubiquitous nowadays. Still, as the company's management notes, there are a trillion dollars' worth of cash and check transactions that are still eagerly waiting to be brought into the digital mainstream. That will provide plenty of fuel to help Visa grow its revenue and earnings well beyond the next 10 years.
One more reason to invest in Visa is the company's dividend. In the past decade, Visa has increased its payouts by a whopping 445.5%. Opting for dividend reinvestment can boost long-term returns. Investors making that choice have an excellent chance of turning $15,000 into $50,000 (or substantially more) by 2033.
