Growth stocks are often a tale of two outcomes. Either they underperform expectations and leave investors in the red, or they thrive and make their investors a lot of money along the way. It's generally seen as the typical risk-reward trade-off.
You can't be sure how a stock will perform, but you can tell when a company has the resources and market opportunities to provide good value over time. If you have $1,000 available to invest, here are three companies to consider splitting it between and sitting back and letting time do its thing.
1. Amazon
As the world's fifth most valuable company with a market cap of just under $1.4 trillion, Amazon (AMZN 0.75%) has been one of the stock market's quintessential growth stocks of the past decade or so. Remarkably, there's still a lot more growth to go.
Amazon operates in three broad industries: e-commerce (Amazon.com), cloud computing (Amazon Web Services), and adtech (Amazon Ads). Here's how those industries are expected to grow annually until 2030:
| Industry | Projected Growth |
|---|---|
| E-commerce | 11% |
| Cloud computing | 14.1% |
| Adtech | 13.7% |
Data sources: GMD Research and Grand View Research.
Amazon's $134.4 billion in revenue in the second quarter was up 12% year over year (YOY), which is impressive considering the broader economy. It's not the typical growth the company is used to, but you have to keep things in perspective. If the company can average at least 10% annual revenue growth, its revenue can double by 2030.
Of course, projected industry growth rates don't guarantee it'll pan out that way (or that Amazon will follow suit). It also doesn't mean Amazon doubling its revenue will translate to its stock price doubling. But for a company that's up over 840% in the last decade, with a track record of high growth, I wouldn't doubt it'd do just that.
2. CAVA Group
Mediterranean restaurant chain CAVA Group (CAVA 2.07%) went public on June 15 and has produced admirable results in the two months since.
CAVA's financials mimic many growth stocks in their early stages. Its revenue is growing impressively, from $45.4 million in 2016 to $564.1 million in 2022 (52.2% CAGR). The company's $171.1 million Q2 2023 revenue was also up over 62% YOY.
More impressively, CAVA finally hit profitability with a net income of $6.5 million compared to a $2.1 million loss in the first quarter. The company has been profitable on a restaurant level (26.1% margins), but corporate costs like general and administrative (G&A) expenses have been weighing down its bottom line. That's no surprise, though, as the company plays the long game.
As of Q2, CAVA had 279 restaurants in 22 states and Washington, D.C., so it's in the early stages of its expansion. The company wants to hit 1,000 stores by 2032, which is doable at current rates. A good checkpoint will be to see when the company hits 500 stores and how its profitability stands then.
CAVA's post-IPO run has put it into expensive territory by most standards, so investors should be cautious about investing a lump sum at once. At this point, CAVA looks like a stock to dollar-cost average your way into. The near term may be volatile, but the company stands to produce a lot of value over time.
3. Roku
Roku (ROKU 4.10%) has the heralded title of being America's top-selling TV operating system (OS).
Growth stocks are volatile in nature, but Roku has sent its investors on a ride. It was up by over 520% during the COVID-19 pandemic, then dropped over 90% from its July 2021 highs, and now it's up over 95% year to date.
What's encouraging about Roku is its account growth. In Q2, Roku's active accounts increased 16% YOY to $73.5 million. Hours streamed outpaced account growth, increasing 21% YOY to 25.1 billion combined hours. The more users and hours spent on Roku's OS, the better because it leads to more advertising revenue.
Add in the growing ad-supported The Roku Channel, and the company should have significant growth opportunities once the advertisement business begins to rebound. It managed to increase platform revenue by 11% YOY, while the U.S. advertising market was flat over that span.
As Roku expands its partnerships (it recently inked one with Shopify for in-stream purchases) and capitalizes on its large market share, it should be a stock that's seen its worst days behind it when the broader economy rebounds a bit.
