What are stock market all-stars? The companies that wow us year after year with earnings growth, a healthy financial situation, and share performance over time. They also are industry leaders, maintaining dominance in their field. You can get in on one of these all-stars once they've already reached that status -- after all, they continue to offer investors growth over time.
But it's even more exciting to discover these companies before they reach that point -- and scoop them up at a bargain price. Of course, that's easier said than done. Still, through careful research, we can select candidates that have what it takes to become tomorrow's all-stars and place a small bet on them today. Let's check out two all-stars in the making.
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1. Etsy
Etsy (ETSY 0.34%) is an e-commerce platform that offers makers of handmade items the opportunity to set up shop -- and you the opportunity to buy these original items directly from them. Etsy's revenue was already on the rise prior to the pandemic but truly took off during the early days of the health crisis when people favored staying home to shop.
Today's economic environment is weighing on customers' wallets and therefore on discretionary spending -- this has held back growth at Etsy. Still, the company has built on the revenue levels it reached during the earlier pandemic days, remains profitable, and recently reached a record number of active buyers. Etsy also boasts about $1.1 billion in cash, another element showing this young company's strength.
If Etsy can manage this well during tough times, there's reason to believe the company can excel as the environment improves. I also like the company's capital light structure because it means Etsy doesn't have to make huge investments to grow. Etsy already has built out its sellers' platform, and the sellers themselves take care of their own inventory and shipping -- a big savings for Etsy. So, the company is able to transform 90% of its adjusted EBITDA into free cash flow.
Meanwhile, Etsy shares are trading for only 16x forward earnings estimates, down from 60 a couple of years ago -- and this looks like an absolute steal for a company with solid financials and excellent growth prospects.
2. Moderna
You may think Moderna's (MRNA 1.69%) all-star days are in the past. The biotech company generated billions of dollars in earnings from its coronavirus vaccine, but sales of the vaccine -- its only product -- are on the decline. Here's why the company's all-star days may actually be in the future.
Moderna has a full pipeline of programs, with many in late-stage development. In fact, the company aims to launch 15 new products over the coming five years. And Moderna predicts those products could equal as much as $30 billion in revenue a few years later.
Yes, that plan sounds ambitious, but even if Moderna only makes it part of the way, this could represent significant revenue ahead. And there's reason to be confident about Moderna's prospects, considering the company brought its coronavirus vaccine from drawing board to market in less than a year -- and has reported encouraging data from other pipeline programs.
Next to market may be the company's respiratory syncytial virus (RSV) vaccine candidate, awaiting a regulatory decision early next year. Though it faces two RSV vaccine rivals already on the market, Moderna's candidate is the only one to come in a pre-filled syringe -- which makes administration easier. This could help it win in the RSV market.
So, Moderna probably won't be a one-product company depending on a single indication for very long. Investors who buy the shares today can pick up the stock at a low price -- 8x forward earnings estimates -- and may score a win with this all-star down the road.
