Every investor wants multibagger stocks. These are the kind of investments that can make up for a dozen losers in your portfolio, or even generate life-changing returns over a long enough period.
The good news for investors is that these kinds of growth stocks are currently on sale, after the Nasdaq Composite index entered a correction earlier this month. Concerns about a trade war and weakening consumer sentiment have pushed stock prices lower, especially for growth stocks -- but profitable and healthy companies will eventually bounce back.
Here are two stocks that could deliver monster returns over the next five years.
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1. Upstart
Upstart (UPST +0.75%) burned plenty of investors after the stock plunged as much as 97% from its pandemic-era peak. But the AI-based consumer lending platform deserves a second look from investors who may have given up on the stock.
While interest rates haven't cooperated the way Upstart would have liked, the company has found its way back to rapid growth and improving profitability. This is due to a significant improvement in its creditworthiness model, called Model 18, which has led to loan approval rates nearly doubling.
The new model incorporates annual percentage rate (APR) as an input. It generates 1 million predictions for each application (six times the number of predictions for the previous model) to find the correct APR. As management predicted, that advancement has significantly improved its conversion rate -- the percentage of applications that get funded.
NASDAQ: UPST
Key Data Points
In the fourth quarter, the conversion rate improved from 11.6% in the prior-year quarter to 19.3%, which led to a 68% increase in loans originated and a 56% increase in revenue to $219 million. That also paid off on the bottom line, with adjusted earnings per share of $0.29, up from a loss of $0.11 per share in the quarter a year earlier.
For 2025, the company expects to be profitable on generally accepted accounting principles (GAAP). It called for at least $1 billion in revenue, meaning revenue growth of at least 58%.
Upstart is down nearly 50% from its peak after it reported Q4 earnings, and its market cap is down to less than $5 billion. The company still has disruptive potential, and the Federal Reserve expects interest rates to eventually decline. That creates several potential tailwinds that could drive the stock to double, triple, or better over the next five years.
2. Sweetgreen
Sweetgreen (SG +1.46%) is one of the more disruptive restaurant chains to go public in recent years. It's the nation's largest fast-casual salad chain, offering healthy options in an industry where they're often hard to find. It's also innovating with technology through the Infinite Kitchen, a robotic system that helps accelerate throughput, saving the company labor costs and helping customers get their orders faster.
Sweetgreen stock has pulled back sharply in recent weeks on concerns about its valuation and weak guidance, and it's now down nearly 50% from its peak in November.
The company's fourth-quarter earnings report seemed to spook investors as well, because results missed estimates. Though same-store sales were up 4%, overall revenue increased just 5% to $160.9 million. Investors were also disappointed with Sweetgreen's guidance, which called for a same-store sales decline of 3%-5% in the first quarter, though that was partly due to the impact of the Los Angeles wildfires. L.A. is where Sweetgreen is headquartered, and the L.A. area makes up 15% of its sales.
NYSE: SG
Key Data Points
However, for the full year, it expects same-store sales growth of 1%-3% and a rise in restaurant-level profit margin from 17% to 19.8%-20.5%, a significant improvement. The real game changer is that the company plans to open 40 new restaurants, including 20 with the Infinite Kitchen, the biggest test for the new technology yet.
Sentiment is clearly against Sweetgreen right now, but the first-quarter challenges appear to be temporary. Better-than-expected results from the Infinite Kitchen would energize the stock. Meanwhile, there's still a long runway for growth, as Sweetgreen has a unique concept with salads; its restaurants generate average unit volumes of $2.9 million, on par with Chipotle Mexican Grill.
Sweetgreen's market cap is now under $3 billion. With a few small improvements, the stock could soar in the coming years.
