Investing in companies that regularly report above-average revenue growth is a proven way to build wealth in the stock market. Even when growth stocks fall with the broader market, investors can always look at the company's performance and feel confident about where the stock is headed down the road.
On Holding (ONON 0.62%), Roblox (RBLX +0.68%), and Uber Technologies (UBER +0.28%) are showing strong business growth that could deliver significant upside in the years to come, according to these Motley Fool contributors. But here's why these stocks could take off this year.
Don't miss this early investment opportunity
Jennifer Saibil (On Holding): If you didn't get a chance to buy Nike stock in the 1980s or Lululemon Athletica stock 16 years ago, don't miss the opportunity to buy the next big name in activewear. It's not actually next, but more like present, because Switzerland-based shoe and athletic apparel maker On Holding is catching the athletic world by storm, gaining fans, and growing its business by leaps and bounds.
Sales increased 47% year over year in the 2023 third quarter and 57% for the trailing nine months. That's during a time period where most retailers have been feeling massive pressure due to inflation. On is building its direct-to-consumer channels, and it's developing loyalty and an incredible brand. Its footwear is developed with its signature CloudTec technology, and the company charges premium prices for what it claims is a better product. It also has a full line of athletic apparel.
This is resonating with an upscale and affluent market, which is resilient during this down economy. These customers have the extra income to pay the higher prices, and they're not interested in switching down from their favored sneakers.
NYSE: ONON
Key Data Points
The higher prices lead to increased sales and scale, and although On hasn't been reliably net profitable since it went public, it has reported positive net income for the past three consecutive quarters. As it continues to build its brand and following without cutting its prices, that's likely to become a sustained trend. Its gross margin exceeds both Nike's and Lululemon's.
Data by YCharts
Despite its strong performance, On stock is down 21% since its initial public offering. Investors might be nervous about a stock that's still relatively young and only recently profitable. However, even though there's risk, the story and opportunity look compelling, and performance should only improve from here. Expect On to report positive results in its upcoming quarters and for its stock to soar this year and in the future.
This popular gaming platform is off and running
John Ballard (Roblox): Shares of Roblox are trading well off their previous peak, but the company's resurgence in recent quarters has provided a great deal of momentum. Roblox just issued another strong earnings report that shows accelerating growth as the video game market recovers. Since September, the stock has climbed 60%, but it still offers plenty of long-term upside.
NYSE: RBLX
Key Data Points
Not only did the company's adjusted revenue, or bookings, accelerate from a year-over-year growth rate of 20% in Q3 to 25% in the fourth quarter, but Roblox's profitable business model is starting to shine again. Free cash flow reversed last year's loss to come in at $78 million in Q4. It peaked at $599 million on a trailing 12-month basis in 2021.
Roblox's strong Q4 performance follows recent efforts to continue expanding its user base. Monthly active payers on the platform grew by 18%, following a successful launch on Sony's PlayStation and Meta Platforms' Meta Quest virtual reality headset.
While the gaming market is projected to grow at a mid-single-digit rate over the next several years, Roblox expects to grow much faster. Management is targeting more than 20% annual growth in revenue. This gives the stock plenty of upside in the next decade.
This transportation titan is accelerating into 2024
Jeremy Bowman (Uber Technologies): Other stocks have gotten more attention in recent years, but few have experienced the kind of turnaround that Uber has.
The ride-sharing giant was weighed down by massive losses coming out of its 2019 IPO, and then it got crushed by the coronavirus pandemic. However, since then, the company has cut costs, exited unprofitable geographies, and ditched ill-advised acquisitions that were no longer adding value. In short, Uber has become much more disciplined. It's no longer chasing growth in multiple directions and is focused on its core strengths in ride-sharing and food delivery.
NYSE: UBER
Key Data Points
Those efforts are clearly paying off in the results. Uber just capped off its first year of generally accepted accounting principles (GAAP) profitability as its Q4 revenue rose 15% to $9.9 billion, and gross bookings were up 22% to $37.6 billion. Profit margins continued to surge as well, with operating income coming in at $652 million, flipping a loss of $142 million in the quarter a year ago.
Looking ahead to 2024, Uber should continue to gain leverage as it benefits from its marketplace business model and cost discipline. For the first quarter, management forecasts gross bookings of $37 billion to $38.5 billion, and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $1.26 billion to $1.34 billion.
The company has put distance between itself and its only competitor in the U.S., Lyft, and it dominates markets in much of the rest of the world. It should continue to benefit from growing demand for ride-sharing and food delivery, and it will generate expanding margins as revenue grows.
The stock was a big winner last year, gaining 149%, but more gains should be in store for 2024 and beyond.
