4 Growing Companies for Your Watch List
William is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Companies that grow their top and bottom lines can vastly reward you. They typically sport high valuations; however, as long as the company keeps growing its profits at a high rate then share prices typically follow. Be warned these companies can correct in a major way during a market downturn, in which case you can take advantage of the cheaper share prices. Fast growing companies typically capitalize on underlying business trends and new innovation. The four companies discussed below fall under those criteria.
Capitalizing on eating healthier
Consumers increasingly realize that obesity can cause a number of health problems leading to lower quality of life, costly hospital stays, and a shortened lifespan. Organic grocer Whole Foods Market (NASDAQ: WFM) seeks to capitalize on the healthy lifestyles trend. It also made encouraging healthier lifestyles a lifetime mission. Whole Foods Market realizes that preventive medicine, such as eating healthy, represents the best way to improve quality of life and reduce the societal healthcare burden overall.
You can see that Whole Foods Market grew its revenue 57% and 1600% respectively over the past five years translating into a market beating return of 423% (refer to the two charts below).
Whole Foods Market currently operates only 349 stores leaving plenty of room for expansion. Same store sales came in at an impressive 7% in its most recent quarter.
Look for Whole Foods Market to continue to capitalize on the healthy lifestyles trend and the building of more stores. It plans to build more than 30 during FY 2013. Watch out for any market correction in order to scoop up shares on the cheap along with the opportunity to collect $0.40 per share per year in dividends while you wait for capital gains.
Quality restaurant experience
Quality food and experience serve as catalysts for the rapid expansion of restaurant chain Chipotle Mexican Grill (NYSE: CMG). Also capitalizing on the health foods movement, Chipotle Mexican Grill brings organic food into the restaurant ensuring the highest possible food quality. It calls this commitment “Food with Integrity.” Moreover, Chipotle Mexican Grill livens up the dining experience with music.
The formula seems to work. Chipotle Mexican Grill grew its revenue and free cash flow an impressive 121% and 615% respectively over the past five years, translating into a total return of 363% (shown in the two charts below).
Chipotle Mexican Grill currently operates roughly 1,500 stores which comes nowhere near the 34,000 restaurants holding the McDonald’s name. Chipotle Mexican Grill faces plenty of room for expansion and has barely begun to scratch the surface in the international scene. The share price of this company underwent severe corrections in the past. If that happens take advantage of the opportunity to buy as many shares as you can.
Online conglomerate Amazon (NASDAQ: AMZN) started way back in the 1990s as an online bookseller. Over the years the company expanded into everything from dry goods merchandise, groceries, web hosting, e-publishing, video streaming, and even producing its own movies and episodic series.
Amazon wants to capitalize on an increasingly web-centric consumer base. The way we consume, work, and live relies more and more on the internet and Amazon wants to serve as the commercial hub in that new technological paradigm.
Amazon’s revenue over the past five years increased an enormous 253% (see first chart below). Free cash flow slumped in recent years due to the company’s heavy investment in its distribution infrastructure in an effort to decrease delivery lead times and deliver on its customer centric philosophy.
Investors who took the long-term view were vastly rewarded with a 321% return over the past five years (see second chart below).
Amazon will continue to serve as the commerce hub of the e-commerce world. As the world continues to adopt the internet and use it as a tool of consumption and work, this company will continue to thrive and reward its shareholders.
With the Case-Shiller index up nearly 10% over the past year it’s safe to say that the housing recovery is in full swing. Companies that sell products that go into the construction, maintenance, and repair of a home will benefit as the consumer slowly opens up the wallet to spend and invest in their homes.
Flooring retailer Lumber Liquidators’ (NYSE: LL) efficient supply chain and the demand for hardwood flooring translated into huge revenue and profitability gains for the company and its shareholders over the past five years.
As you can see in the charts below, Lumber Liquidators increased revenue and free cash flow 77% and 1,200% respectively, translating into a total return of 499%.
Look for Lumber Liquidators to continue to capitalize on the housing recovery. Look out for waning demand for hardwood flooring and Lumber Liquidators’ attempt to diversify its product line over the long-term. As always, take advantage of any market price correction that may occur.
On the whole, these companies capitalized on fundamental business trends rewarding shareholders in the process. They definitely warrant a place on your Motley Fool Watch List and take advantage of any market corrections to add them to your portfolio.
William Bias owns shares of McDonald's mentioned. The Motley Fool recommends Amazon.com, Chipotle Mexican Grill, Lumber Liquidators, and Whole Foods Market. The Motley Fool owns shares of Amazon.com, Chipotle Mexican Grill, Lumber Liquidators, and Whole Foods Market. 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!