Growth stocks are the beauties of the stock world, plain and simple. They're exciting, they have good stories, and they can make you a lot of money.
But for all their beauty, growth stocks are also the prima donnas of the market. They can be erratic, they don't always live up to their billing, and they tend to attract a shareholder base that's ready and willing to run at the first signs of slowdown. For those reasons, caution is certainly in order when you enter the world of growth investing.
Fortunately, The Motley Fool's CAPS service brings us the collective intelligence of a community of 140,000 investors and is a great resource for separating the Jessica Albas from the Jabba the Hutts. Each of the stocks competing for this week's top spot has a market cap of at least $100 million and grew its net profit per share by an average of 20% or more per year over the past three years. (You can run the screen for yourself to get full results.) Let's meet our contestants.
Apparently, it takes more than a global recession to put a damper on travel in China. Earlier this month, Ctrip.com
Overall revenue increased 27% year over year as the company's air travel services posted a big 32% jump. Keeping a lid on general and administrative costs allowed a lot of this growth to drop to Ctrip's bottom line, and gave shareholders a 33% bump in net income.
Investors have awarded Ctrip's stock a hefty valuation as expectations are high that growth in China's economy will spur steep growth in the travel industry.
New Oriental Education
Speaking of China growth stories, make room for New Oriental Education
That market-leading position seems to be delivering for New Oriental. When the company reported its fiscal fourth quarter back in July, it showed a 48% year-over-year jump in revenue and turned last year's fourth-quarter loss into $2.5 million in positive income.
The company is anticipating that revenue will increase another 24% to 29% in the current quarter, but investors seem to be hip to the company's growth potential and have allowed it a pretty rich valuation.
Growth at RadioShack? Seriously? Don't worry, I'm not going to try to spin straw into gold here and say that RadioShack will start putting up Best Buy-type
But if RadioShack is anything, it's a turnaround story. For years the company has been battling falling comparable-store sales and declining revenue. A stabilization in revenue and a reduction in operating expenses have helped the company bring its bottom line in the recent quarter up 178% from where it finished in 2006.
Acquisitions have played no small part in Nasdaq OMX's
The acquisitions helped the company keep pace with archenemy NYSE Euronext
The picture looks pretty bright for Nasdaq. A continued recovery for global markets would benefit the company, as would a return of enough economic confidence to spur some IPOs, from which it would derive more fees. Wall Street analysts expect that Nasdaq will post profit growth of around 14% per year over the next five years.
A stock market crash is no good for business when you provide investment research. Second-quarter results for Morningstar
Between 2005 and 2008, Morningstar averaged profit growth of around 44% per year. The loss of two clients and the past year's drop in the market put a recent hurting on the company's investment counseling business.
However, like Nasdaq OMX, a continued recovery in the global markets should bring clients and renewed profit growth back to Morningstar.
The envelope, please ...
The voting is in and CAPS community members have shared their opinions. With a quick wave of the hand, we're going to dismiss both RadioShack and New Oriental Education. CAPS members seem to dislike just about everything about RadioShack, while the community seems deeply concerned with New Oriental's valuation. Both stocks carry a bottom-rung one-star rating.
Both Ctrip and Nasdaq OMX were fighting hard for the top spot, but came up just short. Both stocks carry a commendable four stars, but have just enough detractors to keep them below a perfect rating.
And that leaves us with Morningstar. Overall, Morningstar has received 1,034 outperform ratings versus just 28 underperform ratings. Why the sea of green thumbs for this investment advisor? Let's take a look at what CAPS All-Star PsychoDr had to say back in March:
People will always pay for objective advice. Though profits have dropped, along with everyone else, these shares are oversold. People see them as a rating agency stock, though they are not at all involved in this area. Good strong company, have a solid reputation, and people will continue to use their advice, especially once the turmoil has settled. I just wish they paid a dividend.
Now go vote!
Do you think that Morningstar has what it takes to be America's next top growth stock? Head over to CAPS and let the rest of the community know what you think.
NYSE Euronext is a Motley Fool Rule Breakers selection. Best Buy and Morningstar are Stock Advisor picks. Best Buy and Nasdaq OMX are Inside Value selections. Ctrip.com is a Motley Fool Hidden Gems recommendation. The Fool owns shares of Nasdaq OMX, Best Buy, and Morningstar. Try any of our Foolish newsletters today, free for 30 days.
Fool contributor Matt Koppenheffer does not own shares of any of the companies mentioned. You can check out the stocks he's keeping an eye on by visiting his CAPS portfolio, or you can connect with him on Twitter @KoppTheFool. The Fool's disclosure policy would surely win America's Next Top Disclosure Policy, but for some reason there's no such contest.