Leading Growth Stocks
Ryan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
A few weeks ago I set out on a mission to uncover the next Netflix, eBay, Apple, or Amazon. Admittedly, that is a formidable task. But I am up to the challenge and with time I feel confident that I will uncover more than a few hidden gems. After all, I did find some very interesting, innovative companies that might present worthy investments.
That said, this article is sort of an in progress review, or an analysis of a few companies that I came across that are worthy of consideration of investment dollars. All of these companies have three things in common: they have profitable business models, they have the potential to grow at very high rates, and they have very interesting stories.
3D Systems (NYSE: DDD)
The first company that I came across was the highly touted 3D Systems. The printers that this company manufactures can print almost anything, from smartphone and tablet covers to customized kitchen gadgets, jewelry and toys, individualized prosthetics and orthodontics, airplane and car parts. The company’s printers covert data input from CAD software or 3D scanning and sculpting devices to printed plastic or metal parts using proprietary engineered plastic, metal and composite print materials. The company’s portfolio of 3D printers includes personal ($1,300 - $20,000), professional ($20,000 - $250,000), and production ($250,000 - $950,000). The portfolio is based on several unique print engines that use a proprietary additive layer printing process designed to meet customers design, prototyping, testing, and production requirements. On one hand, this technology levels the playing field for entrepreneurs by giving them access to the same resources of a company with deep pockets, eliminates much of the expert-user friction, and empowers them to unleash their creativity. And it really hits the sweet spot in the design to manufacturing value chain. On the other hand, many 3D printer companies have tried and failed at large-scale manufacturing and the technology is not fully understood by many investors yet. Furthermore, with the recent initial public offering of ExOne, there are now four publicly traded 3D printing companies: ExOne, 3D Systems, Stratasys, and Proto Labs. Still, it is unclear whether or not 3D printing is an ephemeral fad or a technology that will revolutionize manufacturing.
ARM Holdings (NASDAQ: ARMH)
ARM is the world’s leading semiconductor intellectual property supplier. ARM Holdings is engaged in the licensing, marketing, research and development of RISC-based microprocessors, fabric IP, video processors, physical IP and associated systems IP, software and tools. ARM has an innovative business model – instead of bearing the costs associated with manufacturing, this company licenses its technology to leading semiconductor manufacturers. Then manufacturers incorporate their designs alongside their own technology to create smart, low energy chips for modern electronic devices. This model works because ARM has demonstrated that it is cheaper for companies to license technology than it is for them to develop it in house. ARM contends that by designing once and licensing many times it spreads R&D costs over the whole industry and makes digital electronics cheaper. All in all, given that (1) the majority of royalties are profits and (2) revenues are expected to grow faster than costs, margins should expand and ARM should become increasingly profitable.
Qihoo 360 (NYSE: QIHU)
Qihoo is a Chinese company known for its antivirus software and 360 browsers. Qihoo is the No. 3 Internet company in China as measured by user base, according to iResearch. The company is also the No. 1 provider of Internet and mobile security products in China as measured by user base, according to iResearch. That said, Qihoo 360 offers comprehensive high-quality Internet and mobile security products free of charge, providing users with secure access points to Internet activities. As a result, the Company has amassed a large and loyal user base, which it monetizes primarily through offering online advertising and Internet value-added services. According to some analysts, Qihoo is the next best thing since Google. There is a certain amount of irony in that thinking because Qihoo recently entered the smart phone market. The company collaborated with Haier, the largest Chinese consumer electronics company, to launch the Battleship phone. Qihoo reported that it will provide the software (even though the Android is the main operating system) and Haier will provide the hardware.
My Foolish Take
These three companies are all growing at phenomenal rates. The problem is that they also all have valuations that assume that they will continue to grow at rapid rates into the distant future. To the best of my knowledge, all three of these companies have price to earnings multiples in the low to mid 90’s, which is certainly not cheap. 3D printing stocks are still hot and Qihoo has piqued my interest. But it is unclear whether or not the run for 3D printing stocks is over and whether or not Qihoo is a legitimate competitor in many of the spaces it purports to compete!
RyanPeckyno has no position in any stocks mentioned. The Motley Fool recommends 3D Systems. The Motley Fool owns shares of 3D Systems and has the following options: Short Jan 2014 $55 Calls on 3D Systems and Short Jan 2014 $30 Puts on 3D Systems. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!