Turning $1,000 into $5,000 in seven years is no small feat on the stock market. That would be a total return of 400%, or an annualized rate of 26%. Compare that to the historical average annual return of 9% for the S&P 500, or 82.8% for the seven years. That gap shows the power of compounding on the stock market, which will accelerate the gains from higher annual returns.
For a stock to 5x over seven years isn't impossible. In fact, dozens of stocks do this in a typical seven-year period. Here are two stocks that have the potential to turn $1,000 into $5,000 by 2030.
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1. Carnival
Carnival (CCL -0.66%) is the world's biggest cruise line. The stock may be best known to some investors for its collapse during the pandemic, as cruise ships were grounded around the world for nearly a year.
However, the company has bounced back during the economic reopening with a vengeance, capitalizing on pent-up demand for vacations -- even as other consumer discretionary sectors have faltered and consumers have struggled with inflation, rising interest rates, and fears of a recession. In fact, Carnival has reported record revenue, bookings, and demand in recent quarters, a sign that the demand side of the business is back to full health.
However, that's only part of the equation for Carnival. The company took on a lot of debt during the pandemic and diluted shareholders. As a result, its balance sheet is significantly worse than it was before the pandemic.
Carnival has an estimated $4.1 billion to $4.2 billion in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) -- and $31 billion in debt. Adjusted free cash flow is $1.9 billion through the first three quarters of the year, which management is committing to use to pay down that debt. An expected decline in interest rates should also lower the company's interest rate and make it easier to refinance its debt, which should lift the stock.
In addition to its current momentum, the stock should also benefit from trends like the preference among millennials for spending on experiences, and from cruises being more affordable than many other types of vacations.
Carnival stock is still down 75% from its peak before the pandemic. If the company can deliver solid growth and repair its balance sheet, the share price should be significantly higher by 2030.
2. Etsy
Etsy (ETSY 0.34%), an online marketplace for handmade and vintage goods, has had the opposite experience from Carnival. Etsy's shares soared during the pandemic, but have crashed since then as its gross merchandise sales growth ground to a halt.
The company has struggled during the economic reopening as consumer discretionary spending has shifted from goods like Etsy's to services like Carnival's. But some of that spending on goods is likely to return as the economy normalizes from the pandemic and online sales growth picks up momentum.
Etsy also has a stable and growing base of sellers and buyers, with active sellers up 26% over the last year on the platform, showing that Etsy offers a unique outlet for artisans looking to sell their wares. The recent growth in user numbers, following an earlier pullback, seems to indicate that revenue growth is likely to accelerate.
Like Carnival, Etsy should benefit from a decline in interest rates, which should boost consumer confidence and spending, and also boost the stock because lower interest rates favor growth stocks. Additionally, Etsy stock is cheap for its growth potential, trading at about 15 times expected adjusted EBITDA for the year and around 30 times earnings based on generally accepted accounting principles (GAAP).
At that valuation, it shouldn't take much to move the stock higher. With a reasonable growth rate and expanding margins, Etsy could certainly turn $1,000 into $5,000 by 2030.
