Few things excite Wall Street as much as a company that’s posting industry-trouncing sales growth. That’s because such businesses are winning market share, which implies that they’ve got what it takes to beat back the competition. And while growth stocks tend to produce limited earnings — and sometimes significant losses — during their early expansion phases, that period is often just a prelude to a longer streak of robust profits.
With that promise in mind, let’s take a closer look at the largest-market-cap growth stocks and how they achieved their premium positions over their peers…
The 10 biggest growth stocks of the last five years
Growth is easier to achieve when you’re working from a small sales base. It’s much harder to boost sales by 10% from $25 billion than from $2 billion, after all.
That’s why it’s particularly impressive to find a company that’s expanding quickly even after achieving a sizeable footprint. Specifically, each of these 10 companies is valued at a market capitalization of at least $20 billion and has boosted its sales at a compound annual growth rate of at least 20% over the last five years.
|Company||Annualized 5-Year Revenue Growth (Through 2018)||Market Capitalization|
|Amazon (NASDAQ:AMZN)||26%||$874 billion|
|Facebook (NASDAQ:FB)||48%||$525 billion|
|Netflix (NASDAQ:NFLX)||29%||$130 billion|
|Salesforce.com (NYSE:CRM)||27%||$123 billion|
|NVIDIA (NASDAQ:NVDA)||23%||$92 billion|
|Charter Communications (NASDAQ:CHTR)||40%||$84 billion|
|Intercontinental Exchange (NYSE:ICE)||28%||$52 billion|
|Micron Technology (NASDAQ:MU)||27%||$45 billion|
|Vertex Pharmaceuticals (NASDAQ:VRTX)||20%||$45 billion|
|Johnson Controls International (NYSE:JCI)||24%||$33 billion|
If Amazon.com were simply the planet’s largest e-commerce retailer, that would likely be enough to justify a large premium for the stock. And there’s no debating that point: Amazon routinely handles more than one-third of all digital sales in the U.S. Given that e-commerce shot up to more than 10% of the broader retailing pie in the 10 years ending in 2019, it’s no surprise that the industry leader saw its annual sales soar by almost 900% in that period.
Amazon’s huge base of Prime subscribers, its world-class shipping and fulfillment network, and its ability to offer low prices are just a few of the competitive moats protecting its e-commerce dominance from both online specialists and physical retailers with omnichannel ambitions, such as Walmart (NYSE:WMT).
But the company has also used that platform’s revenues to support its moves into more profitable, faster-growing niches such as producing its own consumer electronics or delivering cloud services.
Considering the bright long-term potential for each of these business lines, it’s likely that Amazon will face increasingly determined competition in each of them. But it’s also a good bet that the next few decades will bring positive returns for its shareholders while the company capitalizes on the shift toward e-commerce while branching out from its retail roots.
As most investors will remember, Facebook had a rocky start on Wall Street: Its shares sank sharply immediately following its 2012 public offering. But the social media giant has gone on to justify the pre-IPO hype — and then some. It booked $56 billion in sales in 2018, up from $12.5 billion just four years earlier. Its profits have risen at an even faster pace, mainly thanks to improvements to the service that have benefited both users and advertisers.
The key ingredient to all that success has been phenomenal user engagement. With more than 2 billion people logging in at least once a month and in excess of 1.5 billion people checking their feeds daily, Facebook is truly the 800-pound gorilla in the social media space. It continually finds ways to make its service more attractive for users — and for advertisers, too, including by adding engaging video ads in recent years.
All of that streaming requires a world-class data infrastructure, which helps explain why Facebook has ramped up capital expenditures at a faster pace than revenue growth. CEO Mark Zuckerberg and his team are also investing aggressively in building on their early leads in artificial intelligence and virtual reality. This spending will necessarily cut into its near-term profitability, especially given that some of its bets will inevitably fail to pay off. But whatever its next growth phase looks like, it’s clear that Facebook’s early detractors who claimed it could never find a way to profit from its user engagement were mistaken.
Netflix began as a scrappy DVD-rental-by-mail service but successfully pivoted into internet-delivered entertainment around 2012. Its timing couldn’t have been better. Thanks to its early-mover advantage in a booming industry, its tech innovations, and its vast and growing catalog of original content, the streaming service’s global membership growth accelerated every year from 2013 through 2018. By the end of that period, it claimed about 150 million subscribers around the world.
CEO Reed Hastings and his team have demonstrated a knack for balancing subscriber growth with improving profitability, and the company’s continued success will depend on those leaders’ ability to keep raising the value of the service — and boosting monthly prices at the same time. That will become harder as more competition enters the streaming video space — and media giants such as Disneyand Comcast aren’t the only players launching new streaming services of their own.
Moreover, Netflix is moving closer to saturation in the U.S. market, which makes subscriber growth domestically harder to come by. Yet with tens of millions of people around the world likely to make the switch away from broadcast TV over the next few decades, and with Netflix still accounting for just a tiny fraction of all video viewing, it continues to have an inside track on market-thumping revenue gains.
Tech companies often possess a number of qualities that land them naturally in the category of growth stocks, and Salesforce illustrates them beautifully.
Since its founding in 1999, the company has been developing customer relationship management software, which performs a host of basic-necessity services that most other enterprises need in order to conduct business. Delivering its product via the cloud means it never faces the manufacturing and shipping challenges that can limit companies in other industries. And that helps it support head-turning profitability, with gross profit margins often passing 80% of sales.
Salesforce has capitalized on the rising popularity of cloud-based services over the prior delivery model of software purchases or limited-time licenses. Its shift to that subscription model has powered robust sales gains, as well as improved profitability and steadier cash flow. Yet its market-thumping expansion pace has only accelerated in recent years, which indicates that its customers are finding many reasons to renew their subscriptions and even widen their contracts to cover more services.
All of that success has attracted competition from major cloud software providers, many of which are willing to cut their prices and margins in a bid to carve out some market share. Thus, investors who buy Salesforce stock today have to hope that the bright future ahead in the cloud software-as-a-service industry niche spells good news for its business, even as rivalries intensify.
NVIDIA began its corporate life focusing on producing graphics processing units for PCs. However, as with most companies on this list, that early platform only set the stage for the real growth engines that appeared later…
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