Finding great companies while they are still small is a smart strategy to identify stocks that can potentially make you a millionaire investor. It's all about putting money to work in growing companies that still have a large expansion opportunity. But it can take time for even the best growth stocks to grow your savings. If you had bought $10,000 of Walmart stock in 1980, it would have turned into $1 million after 18 years.
With that in mind, let's look at three promising companies that a team of Motley Fool contributors believe have the potential to grow significantly in value over the long term.
The next great restaurant growth story
John Ballard (Cava Group): Every decade, it seems like at least one new restaurant chain emerges in the stock market and goes on to deliver massive returns for early investors. A $10,000 investment in Chipotle Mexican Grill (CMG 4.49%) at its initial public offering in the early 2000s would already be worth $611,000. Cava Group (CAVA 0.98%) could be next in line.
Cava is focused on the Mediterranean fast-casual market, where there's a lot of opportunity for a dominant national chain to fill a void in the industry and do very well. Cava only had 309 restaurants at the end of 2023, but management is aiming for 1,000 restaurants. That might prove conservative given the footprint of more established chains like Chipotle, but the initial target should provide enough runway for growth to deliver excellent returns to start.
NYSE: CAVA
Key Data Points
A couple of strong quarters of growth have already sent the stock up 33% from its initial public offering price last year. Revenue grew 52% year over year in the fourth quarter. This growth was driven by a 30% increase in the number of restaurants opened compared to the year-ago quarter, in addition to a solid 11% increase in same-store sales.
It was also encouraging to see Cava turn the year-ago net loss of $18.8 million into a profit of $2 million. For the full year, Cava earned a restaurant-level profit margin of nearly 25%, which means earnings per share should continue to grow as it expands across the U.S. It currently operates in just 24 states and the District of Columbia.
This restaurant chain has everything a growth investor needs: A concept that is resonating with customers across multiple states, a long runway of growth, and a profitable restaurant model.
A great growth stock at a deep discount
Jeremy Bowman (Roku): The S&P 500 is back at an all-time high, and valuations are soaring in multiple sectors. However, one growth stock has been left behind by the recent rally. That's Roku (ROKU +2.51%).
Shares of the leading streaming distribution platform suffered a double whammy recently. The company delivered a disappointing earnings report in February, and Walmart announced the following week that it was acquiring Vizio, a TV manufacturer with a streaming platform. This sent Roku down again.
Roku is now trading down 41% from its peak in November, setting up a great buying opportunity.
NASDAQ: ROKU
Key Data Points
First, there was nothing particularly alarming in the Q4 earnings report last month. Roku beat revenue estimates, but management seemed uncertain about the trajectory of the recovery in the ad market, and the company failed to give specific guidance for 2024. The media and entertainment advertisers that it caters to are still struggling as legacy media companies pivot to streaming, but that should change over the next year or two.
Advertising tiers at services like Netflix, Walt Disney, and Amazon are picking up steam, and new streaming services are expected to launch, like the new sports-focused joint venture from Disney, Fox, and Warner Bros. Discovery. Disney also set a date for its flagship ESPN streaming service next fall, which could be the biggest launch ever in streaming.
The volatility that Roku is currently facing should smooth out over time as digital advertising recovers and the streaming landscape stabilizes. There's nothing fundamentally wrong with the business, and it still has a huge growth opportunity in front of it, despite a new challenge from Walmart. After all, Roku has grown in spite of competing with tech giants like Amazon, Alphabet, and Apple.
Investors can take advantage of a discount on a stock that could easily be a multibagger over the long term by buying today.
Many millionaires already minted
Jennifer Saibil (Chipotle Mexican Grill): There are few stocks that are as reliable for growth as Chipotle Mexican Grill. It consistently delivers higher sales and profits, and it still has a long growth runway.
Revenue increased 14.3% year over year in 2023, and comparable sales were up 7.9%. It operates with incredible efficiency, and operating margin expanded from 13.4% last year to 15.8% this year. Earnings per share increased 38% to $44.34. Chipotle generated more than $1.2 billion in free cash flow last year, and it carries no debt.
NYSE: CMG
Key Data Points
Chipotle was a forerunner of the fast-casual dining segment, and its popular, mid-priced fare draws customers even in more challenging economies. It targets a more affluent, resilient customer who can afford to spend a little more even with high inflation. It's likely to do even better when inflation moderates.
As of the end of 2023, Chipotle operates 3,437 stores. It opened 271 in 2023, and expects to open about 300 stores this year. It has longer-term plans to expand to 7,000 stores in North America, giving it plenty of room to keep growing. It also recently announced its first-ever international franchise partnership for stores in the Middle East.
Chipotle has been a market-beating stock throughout its lifetime, and by a wide margin. Investors can be confident in its continued opportunities. Even if you've missed Chipotle stock's incredible run until now, you can benefit from its future potential.
