The market rally that began in 2023 is still showing signs of life in 2024, and investors' hopes for a prolonged bull market are evident across a range of sectors. For long-term investors, these short-term ups and downs of the market aren't necessarily pleasant, but they also don't affect their long-term plans all that much.
Long-term investors don't care as much about timing the market. Even if a stock buyer gets lucky and buys in at just the right time to generate a fantastic return on occasion, that buyer will soon discover that such performance is hard to replicate often enough to sustain that level of return in a meaningful way. The long-term investor knows the better option is to focus on diversifying their portfolio and consistently adding to positions in great businesses no matter what the stock market is doing.
If you're on the hunt for great businesses that also happen to be potential monster growth stocks worthy of buying and holding long-term, here are two names you will want to consider.
1. Duolingo
Duolingo (DUOL 1.21%) is an educational technology company that produces learning apps and provides language certification. The tech company offers courses on music, math, and over 40 languages. It has grown to become the top language-learning app in the world by revenue.
The company's success is being recognized by the market and share prices have popped by 60% over the trailing 12 months. Part of the enthusiasm is the knowledge that the total addressable market for language learning is expected to grow to around $188 billion by the early 2030s. That's a considerable expansion from the current market of around $71 billion.
Duolingo is building its offerings beyond language learning as it seeks to widen its footprint in the broader education tech space. Its math and music courses were only added in late 2023 to its app offerings, and more subjects could follow in the future.
Another cause for market enthusiasm is the fact that Duolingo's financials are steadily improving and the company is profitable under generally accepted accounting principles (GAAP). Users can subscribe to access Duolingo's educational offerings or use an ad-based free tier.
In 2023, Duolingo generated revenue of $531 million, $496 million of which came from subscription bookings. Those two figures were up 44% and 49%, respectively, from 2022. Total 2023 bookings on Duolingo's platform exceeded $622 million, a 45% increase year over year.
2023's net income came to $16 million, which was quite an improvement from 2022's net loss of about $60 million. Free cash flow for 2023 totaling $144 million, a whopping 213% increase from 2022. Duolingo now has 26.9 million daily active users and 88.4 million monthly active users. Those two figures were up 65% and 46%, respectively, compared to the prior year.
Some Wall Street analysts think the stock could have as much as upside as 21% on the median end and 31% on the high end over the next 12 months alone.
Stepping back and looking at the bigger picture, this is a business with a tremendous growth opportunity in a vast, rapidly expanding addressable market, and an increasingly profitable business at that. This could create a compelling buying opportunity for some long-term investors.
2. Intuitive Surgical
Intuitive Surgical (ISRG -0.17%) is a leader in surgical robotics. This is a space that some analysts estimate could hit a valuation of close to $20 billion by the year 2030. The demand for the precision and enhanced patient outcomes that surgical robotics systems can deliver is on the rise. Intuitive's products and services work well with minimally invasive surgery and are even finding use cases in open surgery. Intuitive Surgical benefits from the overall growth trajectory of its industry, which it essentially dominates. Its unique business model drives steady revenue growth and profitability.
When a hospital or other medical system purchases a surgical robotics suite, they are making a significant investment. Intuitive Surgical's systems cost anywhere from $700,000 to $2.5 million. Its customers can purchase these systems outright, either through leases or, in some cases, through usage-based agreements.
Each system requires specific instruments and accessories, which must be replaced after a certain number of uses. The company typically brings in anywhere from $700 to $3,600 in revenue for every procedure performed using one of its systems from the sale of needed instruments and accessories.
Intuitive Surgical also typically enters into service contracts with its clients when a customer leases or buys a system. Those contracts bring in annual fees per suite ranging from $80,000 on the low end to $200,000 on the high end per system.
It's a variation on the razor and blade sales model where most of the revenue comes from the sale of the blades. For full-year 2023, Intuitive Surgical reported revenue of $7.1 billion, which was up about 15% from 2022. Of that total, $5.94 billion was derived from recurring revenue (i.e., the blades), or 83% of Intuitive Surgical's 2023 revenue.
The company's recurring revenue as a percentage of overall revenue has grown steadily with time. In 2022, 79% of Intuitive Surgical's annual revenue was from recurring revenue, compared to 75% in 2021. And in 2023, Intuitive Surgical reported profits of $1.8 billion, up 35% from the prior year. Over the trailing 12 months, the company has also brought in free cash flow of $780 million.
This is a rock-solid business, one of those kinds that won't necessarily make you rich overnight (as few stocks do), but can bring in steady returns over time. Investors seem to have experienced a renewed interest in the stock along with the broader market's ascent, driving shares upward by around 50% over the trailing 12 months. It might be a good time for long-term investors to take a second look at this top healthcare stock.
