Owning hypergrowth stocks over the long term can be a path to market-beating returns, and there are some amazing opportunities for investors today.
Airbnb (ABNB 0.75%), On Holding (ONON 2.66%), and Axon (AXON 0.65%) are all growing by double digits, but they may only be scratching the surface of their potential. Here's why they're top hypergrowth stocks to own for the next decade.
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1. Airbnb
There is a lot to like about Airbnb stock, but the chart below makes it simple to see the long-term trends. This is not only a fast-growing revenue company; it's a cash-generating machine.
ABNB Revenue (TTM) data by YCharts.
Airbnb does this by being a platform with a network effect in short-term real estate rentals. More supply on Airbnb's platform leads to more demand, which attracts more supply, and so on. I think this network effect not only has a long growth runway worldwide, but also will be pushed out into new verticals like vacation experiences and services.
While the $3.4 trillion addressable market is optimistic, there's a long runway of growth ahead for Airbnb, and this is the kind of company I can see holding for decades as the company expands.
2. On Holding
One of the hottest brands in sporting goods is On Holding, and the stock is cheaper than you might think. The company has outgrown Nike by a wide margin since going public, but it's also trading for a reasonable valuation. On's price-to-sales ratio is just 6, while Nike trades for 3.5 times sales.
ONON Revenue (Quarterly YoY Growth) data by YCharts.
On's gross margin is also around 60% compared to Nike's, which hovers around 45%. These high margins are a result of On positioning itself as a premium running and fashion brand and consumers being willing to pay a price point that's often over $140 for On's shoes.
Management expects to double sales between 2023 and 2026 and is building a track record of outperforming its own guidance. I don't know how long On Holding will be able to keep up this pace of hypergrowth, but I see no signs of slowing down now.
3. Axon
Speaking of companies that seem to grow like clockwork, Axon grew at a compound annual growth rate of 27.4% over the past 10 years, an incredibly consistent level of growth. It's done so by not only growing body camera and cloud services revenue, but also growing Taser revenue at a 17% compound rate over that time.
AXON Revenue (Quarterly YoY Growth) data by YCharts.
We see no signs of Axon slowing down, either. Axon has very little market presence outside of the U.S. and Commonwealth countries, so there's an opportunity to grow internationally. The company can push on increased revenue per customer by adding more software services and improving hardware offerings, as it has demonstrated for years.
The lock-in with law enforcement can't be overstated either. When officers and prosecutors get used to working in Axon's evidence workflow, it can be sticky, leading to contract renewals and contracts that often extend to 10 years. This has been a hypergrowth stock for years, and that may continue for a while.
Hypergrowth stocks are an opportunity in the market
Investors often have a hard time valuing hypergrowth stocks because it's difficult to project double-digit growth over multiple years. But Airbnb, On Holding, and Axon have what it takes to grow double digits for the foreseeable future and that's why they're my top hypergrowth stocks right now.
