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Growth stocks are favoured for their potential to deliver exponential returns for investors. Popular growth names like Tesla, Apple and Microsoft has tripled in value, at the very least, over the past 5 years, this is despite the beer market in 2022 and 2018.
There is a lot going on right now that are cause for investors’ concern. Inflation is looking sticky, increasing macroeconomic uncertainties, and major international conflicts are still ongoing.
Russia-Ukraine, China-Taiwan and now Israel-Hamas are all slowing economies down and making commodities even more expensive.
And don’t forget the Feds with their high interest rates (higher for longer).
Financial markets right now are minefields to say the least.
But there is cause for optimism for the everyday retail investor like you and I: Growth Stocks. With growth stocks we can fly over the mindfields of the financial markets, outrun inflation with explosive returns over the long run.
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“Be greedy when others are fearful”
In fearful moments like this, smart growth investors go hunting.
Here are 3 growth stocks with strong growth potentials to consider:
1. Arlo Technologies
Arlo Technologies is one of the top DIY smart home/home security companies. The company is known for making smart security cameras for home protection.
Their home security solutions/products includes smart cameras, video doorbells and smart floodlights.
Arlo was spun off from NETGEAR in 2018 and has over 7.9 million registered accounts, 2.3 million paid accounts and has shipped over 29.4 million devices.
The company is leveraging AI especially computer vision to enable customers easily keep an eye on their home.
According to Market Research Future, the security camera market is expected to reach $31 billion by the end of 2023 at a robust CAGR of over 18.30% during this period.
Growth during this period will be fuelled by increasing consumer interest and Arlo has established itself as a key player in this market.
Seeing how interwoven the market is, Arlo can easily expand its product offerings to the broader smart home/home security market, which according to a report by marketsandmarkets is projected to reach $84.4 billion by 2027.
Over the years, Arlo Technologies has established itself as having one of the best DIY security cameras in the industry and the DIY security system category of home security systems is expected to grow at the highest CAGR.
The company is currently valued less than 2x 2022 sales despite the rally in a stock’s price which more than doubled year-to-date.
The smart home home security market is highly competitive, Whales like Amazon’s Ring and Blink, and Google’s Nest are at the top of this market with diverse product offerings. And there’s Wyze, a budget smart camera company with smart security cameras that cost less than 50 Bucks.
Other Arlo competitors in the broader home security market includes Simplisafe, ADT, Ecobee, Eufy, Vivint, Brink’s Home and Alarm.com.
Arlo is a solid small cap stocks with lots of room for growth for companies camera technology integrates AI to offer smart features to paying users.
Its business can be divided into two major categories; hardware and cloud-based services.
Customers who purchase Arlo devices are required to pay a subscription fee, ranging from $4.99/month to $24.99/month, in order to unlock advanced features of the devices.
The cloud business guarantees that they can generate significant revenue without making any new hardware sales.
In the second quarter 2023, the company reported that 245,000 paid accounts subscribe to its Cloud service business, an increase of 54.9% year-over-year.
Service revenue, which accounts for almost half of the companies revenue grew by 53.5% year-over-year in Q2 2023.
Annual recurring revenue is also growing impressively at 66.1% year-over-year Q2 2023.
Arlo’s service business is the company’s growth engine.
When you dig into the company’s financial, you will realise that the company uses its smart security devices (smart cameras, floodlights and video doorbell) to bring customers into its ecosystem.
Once in, they get them to commit to a subscription plan and KaBOOM! Recurring revenue is unlocked.
Shopify provides an all-in-one e-commerce platform that enables merchants of all sizes build and manage online stores.
The company was founded in Ottawa, Ontario, Canada in 2006 and has grown to become a multinational with operations all over the world .
The e-commerce giant has expanded its offerings, overtime, from just helping merchants create online stores to now also processing payments for merchants through its fintech platform, Shop Pay.
Shopify has over 4 million online stores on its platform in over 175 countries globally.
It has established itself as one of the leading e-commerce platforms and has attracted customers like Pepsico, Whole Foods Market, Heinz, Sephora, RedBull, Fitbit and Tesla.
According to the U.S. Department of Commerce statistics, “U.S e-commerce sales reached $1.03 trillion in 2022, which account for 23.8% of the total retail sales”.
Clearly there’s still a lot of room for e-commerce to grow in the US alone, which accounts for over 60% of Shopify’s revenue.
Globally, Statista projects revenue in the e-commerce market to reach $3.64 trillion in the 2023 and grow to a projected market volume of $85.56 trillion by 2027.
Shopify has established itself as a major player in a huge and growing market.
Shopify’s direct competitors includes Woocommerce, Bigcommerce, Ecwid, Adobe Commerce, Squarespace and Wix.
Merchants also have the option of selling their merchandise on online marketplaces like Amazon, eBay and Facebook Marketplace. As such these platforms are indirectly competing with Shopify, albeit, not necessarily in a zero-sum way.
Having an eBay store does not stop merchants from building their own stores on Shopify.
Instead of competing directly with online retailers like Amazon and eBay, Shopify develops a platform that enables millions of merchants capture niche markets.
Shopify does not just enable merchants sell their merchandise online, it also gives them a lot of control over their business operations, something online Marketplaces don’t provide merchants.
Among its direct competitors, Shopify is undisputedly the most popular choice for merchants looking to sell online.
Its technology and seamless integration put its way ahead of competition. On integrations, Shopify Marketplace Connect App enables merchants sell on major Marketplace like Amazon, eBay and Walmart, while managing and fulfilling their orders on the Shopify platform.
Shopify’s business and that of its merchant is growing rapidly.
In 2022, 561 Million unique online shoppers purchased from shopify merchants, a 40% increase year-over-year, generating $197 billion in gross merchandise sales.
Revenue growth has been exceptional for Shopify over the past couple of years growing from $1.6 billion in 2019 to $5.6 billion in 2022; that’s a 4x revenue growth in just 3 years.
The company’s gross profit margin has consistently been over 45%.
A lot of that profit is thrown back into Research and Development as Shopify continue pushing to capitalise on its market lead and extend its dominating position with technology that is years ahead of competition.
Shopify (NYSE: SHOP) is an established leader in a growing market with lots of growth potential for the long-term.
Paypal is an online payment service provider with a broad suite of solutions that includes payment processing, a popular branded checkout, and a digital wallet, which all creates a faster, safer, and easier way to pay and get paid online.
The company is a key player in the global digital payment service market with a dominant market share built over the past 25 years.
PayPal has built up a strong reputation in the fintech industry and a very strong brand recognition, all of which comes together to make PayPal a globally trusted brand for online payments.
Trust in fintech is a huge capital, one that PayPal has exceedingly and is contributing to the company’s steady growth year-after-year.
PayPal operates with nine subsidiaries including Braintree, Venmo, Xoom, Zettle and PayPal Credit.
According to a report, digital payments market size is projected to grow from $111.2 billion in 2023 to $193.7 billion by 2028 at a CAGR of 11.8%.
Over the next five years the digital payment market will almost double, and PayPal holds a dominant 41% market share of the global online payment processing market.
The Fintech company is well positioned to capitalise on its dominance in this growing market to accelerate its growth.
Competition is intense in the digital payment market with lots of new players bringing juicy offerings to consumers and established brands pushing to gain more market share.
This intense competition puts pressure on margins while requiring companies to continue innovating at insane speeds to keep up or gain an edge over competitors.
Paypal’s major competitors in the online payment market is Stripe which has 19.5% market share and Shop Pay with 12.5% market share against PayPal’s 41%.
The company also faces competition from Affirm, Apple Pay, Block, Google Pay, Adyen, and Afterpay in the broader digital payment market.
PayPal is a legacy online payment solution provider with a new CEO challenged with accelerating growth in an intense competitive environment.
Braintree, an unbranded payment processor, is the fastest growing arm of PayPal, it contributed about 30% of PayPal’s total revenue in 2022.
Paypal’s unbranded transactions are growing rapidly, jumping 40% in 2022.
A growth and now value stock in a crossroad, with two business segments going for it and against it; one has high margins but growth is slowing (branded transactions) and the other with lower margins is experiencing acceleration in growth (unbranded transactions).
This conundrum pressured PYPL down by over 80% from its all-time-high set in 2021.
To compound it all, the company is having to deal with macroeconomic conditions that puts pressure on consumer spending (its bread-and-butter).
Nonetheless, all these negatives has already been priced into PayPal’s current stock price.
As growth is slowing for its branded transactions, Braintree (unbranded transactions) may very well be the game-changer for the Fintech giant.
Currently not priced into PYPL are the impressive growth in its unbranded payment processing, potential for improved margins, the eventual favorable macroeconomic conditions which will lead to inevitable rise in consumer spending, growth from its strategic partnerships, and expansion into new markets.
“Strike when the iron is hot🔥”. Paypal’s iron is hot, trading at an industry low PEG of 11.5, here is a compelling bargain.
Henry John is a Stock Portfolio Manager that focuses on companies developing cutting-edge technologies.
Keeping track of cutting-edge techs, companies and stocks is what I do almost everyday. And I love it. Whether it’s artificial intelligence, 5g, or autonomous vehicles; I’m all in.
I’m a self-made millionaire who made most of his money investing in technology companies while working in finance.
Yes! I owe it all to tech and finance.