8 Top Performing Stocks and How to Identify the Next Winners

How can you identify companies best positioned for growth long-term? In this post we’ll look at eight of the top performing growth stocks over a long-term time frame and offer insights into how you can use stock market data to identify the best performing stocks for the future.

Growth vs. value

Stocks are often categorized as growth stocks or value stocks. Growth stocks are companies that analysts believe have the potential to increase revenues or profits faster than the industry average. While value stocks are stocks that analysts believe to be trading below their intrinsic value, due to public perception of the company or any other factor that could affect the share price.

Growth stocks can be some of the most profitable stocks to invest in, however they tend to have higher prices and valuation multiples than other stocks. In addition these fast-growing companies typically reinvest their available cash back into the business, rather than paying dividends to investors. In return for paying a higher price to earnings (p/e) ratio, investors expect significant capital appreciation on these investments, i.e. a steep increase in the stock price compared to what they paid for it.

Disclaimer: capital appreciation is not a given, and investing in growth stocks comes with the same risks as any equity investment.

According to research led by Federico Gagliolo of the University of Genoa, since the end of the financial crisis of 2008/09, returns of growth shares have surpassed those offered by value stocks. The authors suggest, “The persistence of the excess return paid by growth stocks could be due to the expansive monetary policies of recent years which led to historically low long-term interest rates. This context favors a marked increase in prices of growth stocks, as they are strongly linked to the expected cash flows in the future, whose discounted value increases.”

With that in mind, let’s take a look at some of the best performing growth stocks to date:

1. Amazon (AMZN)

This international eCommerce giant is now a household name. During the height of the coronavirus pandemic, many depended on Amazon to deliver their household goods and even groceries. But the company also has it’s hand in cloud computing, digital streaming, and artificial intelligence as well, keeping its eye on long-term growth.

Founded in July 1994, Amazon, held its initial public offering (IPO) on the NASDAQ stock exchange on May 15, 1997, at an opening price of $18.00. Since then, the stock has split three times, namely, in its early years (June 1998, January 1999, and September 1999). The split-adjusted IPO opening price is therefore shy of $2.

Since going public, Amazon shares have returned around 171,900%, translating to a compound annual growth rate (CAGR) of about 36.5%. Put simply, $1,000 invested in the shares about 24 years ago would now be worth over $1,700,000.

At present, Amazon’s market capitalization (market cap) is around $1.64 trillion and the median 12-month price target forecast for AMZN stock currently stands at $4,000.

So, what does Amazon’s digital data show about the tech company’s performance? We use monthly unique visitors (MUVs) as a proxy for monthly active users (MAUs), which indicates a website’s popularity, growth, and performance.

Our data suggests that unique visitor growth has stayed steady at 12% year-over-year (YoY). Given that 4Q20 was such a bumper quarter for Amazon, this is a positive signal. However, total YoY visitor growth has slightly decelerated from 21% to 17% in 1Q21, which is expected given the loosening of lockdowns.

2. Apple (AAPL)

Whether it’s the Apple Watch or the latest iPhone, the Apple ecosystem is part of the company’s secret to ongoing growth and loyal customers. Apple was founded in April 1976, and is one of the largest companies by market capitalization (market cap) in the world. Since the consumer technology giant went public on Dec. 12, 1980 trading at $22.00 per share, the stock has split five times. Thus, on a split-adjusted basis, the IPO share price was 10 cents (or $0.10).

Apple shares have returned over 134,900% since first entering the market and AAPL stock’s CAGR is approximately 19.5%. $1,000 invested in the shares at the time of IPO would now be worth about $1,350,000.

Note that Apple currently pays a dividend yield of 0.7%, which is unusual for growth stocks. However, the CAGR return above does not include the dividend payments or the reinvestment of those dividends.

In August 2018, Apple became the first U.S. company to have a market value of $1 trillion. Two years later, in August 2020, it was also the first one to reach a market cap of $2 trillion. Now, it is valued at $2.12 trillion. The median 12-month price target forecast for AAPL stock currently stands at $155.

3. Facebook (FB)

The social media leader counts WhatsApp, Instagram, Messenger, Oculus, and of course, Facebook among its products. With such a big influence on the way people connect online, it’s no surprise that Facebook has seen share prices run higher since it came on the market May 18, 2012; at an opening price of $38.00.

Since going public, Facebook shares have returned over 680% and FB stock’s CAGR is approximately 25.8%. $1,000 invested in the shares in 2012 would now be worth about $7,800.

At present, Facebook’s market cap is approximately $929.4 billion. The median 12-month price target forecast for FB stock currently stands at $350.

4. Netflix (NFLX)

The streaming company actually came onto the scene as a market disruptor, founded in 1997 when Blockbuster was still around.

Netflix held its IPO on May 23, 2002, at an opening price of $15.00 per share. Since then, the stock has split twice. The split-adjusted IPO opening price would be slightly over $1.

Since going public, Netflix shares have returned over 50,300%, giving NFLX stock a CAGR of ~39%. $1,000 invested in the shares at the time of IPO would now be worth over $500,000.

At present, Netflix’s market cap is approximately $222.3 billion. The median 12-month price target forecast for NFLX stock currently stands at $650.

5. Alphabet (GOOGL)

The streaming company actually came onto the scene as a market disruptor, founded in 1997 when Blockbuster was still around.

Netflix held its IPO on May 23, 2002, at an opening price of $15.00 per share. Since then, the stock has split twice. The split-adjusted IPO opening price would be slightly over $1.

Since going public, Netflix shares have returned over 50,300%, giving NFLX stock a CAGR of ~39%. $1,000 invested in the shares at the time of IPO would now be worth over $500,000.

At present, Netflix’s market cap is approximately $222.3 billion. The median 12-month price target forecast for NFLX stock currently stands at $650.

6. Etsy (ETSY)

The eCommerce site popular for handmade and vintage goods was founded in June 2005. Etsy held its IPO on April 16, 2015, at an opening price of $31.00 per share. Since going public, Etsy shares have returned ~590% with a CAGR of ~38%. $1,000 invested in 2015 would now be worth about $6,900.

At present, ETSY’s market cap is around $21.2 billion. The median 12-month price target forecast for the stock currently stands at $240.

Looking at the digital data, global unique visitors to etsy.com, a historically strong indicator of growth in active buyers on Etsy’s marketplace, saw growth decelerate vs. 4Q20. At a recent conference in March 2021, management noted they expect the substantial improvements in purchase frequency experienced in 2020 to continue into 2021.

Our data suggests purchase frequency, as represented by payment traffic per active buyer, remains up substantially in 1Q21, but has decelerated from the holiday highs (when mask sales were escalated).

7. Nike (NKE)

Nike needs no introduction. The athletic apparel and equipment manufacturer and retailer was founded in January 1964 and went public on Dec. 2, 1980, at an IPO price of $10.50. Since then, the shares have split seven times. The split-adjusted IPO price would now be around $0.15 (or 15 cents).

NKE shares have returned over 89,200% since making its market debut, giving Nike stock a CAGR of ~18.2%. $1,000 invested in the shares at the time of IPO would now be worth over $893,000. Shares jumped about 49.84% YoY, currently offering a dividend yield of 0.81%.

At present, Nike’s market cap is around $212.2 billion. The median 12-month price target forecast for NKE stock currently stands at $165.

And Nike’s website traffic is hitting new heights. It recorded a particular boost from October to November, after slashing prices for its Black Friday sale bonanza.

Indeed, from September 2020 to November 2020, traffic spiked from 104 million to 142 million, an increase of 29%. And from the beginning of the year, web traffic is up a staggering 66%. That beats the 61% adidas recorded during the same period, as well as ASOS (up 52%).

8. Walmart (WMT)

Walmart, the largest retailer by global revenue, was founded in July 1962 and went public on Oct. 1, 1970, at a price of $16.50. Since then, the shares have split nine times. The split-adjusted IPO price would now be around $0.06 (or 6 cents).

Since going public, WMT shares have returned over 233,700% with a CAGR of ~16.6%. $1,000 invested in the shares in 1970 would now be worth over $2,330,000.

Note that the big box retailer currently pays a dividend yield of 1.55%. However, the CAGR return above does not include the dividend payments or the reinvestment of those dividends.

At present, WMT’s market cap is around $400.5 billion, and the median 12-month price target forecast for the stock currently stands at $160.
And the digital data shows that Walmart’s digital traffic is accelerating.

Total unique U.S. visitors to walmart.com accelerated from 27% YoY growth in Q3 to an impressive 42% YoY growth in the Q4. Key insight: Walmart’s website is rapidly attracting new users.

Meanwhile total visits retained the same strong growth seen in the third quarter. For the fourth quarter, total visits reached a whopping 1.7 billion, 46% YoY growth. That’s vs. 44% YoY growth in the third quarter, and 45% in the second quarter. In short, total traffic growth (which includes multiple visits made by the same visitor) has remained at elevated levels.

How to identify a top growth company

So, you might be wondering: How can I identify the next top-performing stocks? The key with investing in growth stocks is to identify these names as early as possible in order to maximize returns.

There are a number of characteristics that analysts typically look for:

• Strong management team
• Innovation
• Growth prospects
• Financials that outperform peers

Strong management team

We all know that you want to work at a company with a strong management team. But you may be asking yourself why this is at the top of the list for identifying a growth company.

As we will discuss below innovation is a common characteristic of growth companies. A skilled management team will be both innovative and strategic, and this is what is needed to transform a company from one with regular strong performance to a top performing company.

Innovation

Growth firms are usually the most innovative –just consider the examples above. They challenge, and disrupt the market and our way of life. Google forever changed the internet game and Facebook was a trailblazer in the social media space. These two companies in particular not only impacted users’ way of life but also marketers and the way businesses connect with their customers. And their business decisions continue to influence the market. Innovation isn’t limited to a new type of product, but can also include a new strategy or way of addressing customers.

Growth prospects

But Innovation without growth prospects goes nowhere. A company with strong growth prospects typically operates in a growth market, rather than a market that has reached the end of its growth trajectory.

Consider artificial intelligence. This is a space where we are seeing a lot of innovation and there is room to run higher. Other growth industries include artificial data science and marketing.

Financials that outperform peers

When evaluating any company as an investment opportunity you should look for strong financials. With growth stocks we want more than strong financials, we want financials that outperform peers.

So what do we really mean? We want to see profit margins and revenues that are increasing faster than competitors. This needs to be combined with a high return on equity (ROE) and reasonable debt levels, to ensure that the ROE is sustainable.

John Campbell of Harvard University and his colleagues suggest, “there is more to growth than just ‘glamour.’” Their research highlights the importance of cash flows, low levels of debt and cyclicality (i.e., the less cyclical the firm, the better) for the potential success of growth stocks. It’s important to look at stocks in context of their space. 100% growth YoY may sound impressive, until you see that the top competitor in the space gained double that rate.

Using digital data to identify growth companies

Digital trends, website traffic and engagement, and much more, can also be helpful in identifying growth businesses. Thanks to the coronavirus pandemic, online activity both on desktop and mobile devices has become an increasingly large part of our lives, making this type of alternative data more insightful than ever before.

Access to these data points provides investors with the relevant metrics to choose from to evaluate and benchmark company performance, and forecast growth. You can also see the market trends and changes as they unfold in almost real time. It starts with understanding the digital data.

Get started with digital data today

Start investing in growth stocks today

So you can see the benefits of investing in growth stocks. Do remember that growth stocks are not limited to the ones discussed in this article. There are plenty more to choose from in a number of sectors including healthcare, eCommerce, electric vehicles, and more.