What does it take for a stock to double? First, it should be a smaller company with a huge untapped market. Second, it should have a sticky product, which means they are never out of demand. And third, it should have the management that has what it takes to grow. If you find these three qualities in one stock, there is a high possibility it could double your money in three years, and this is my conservative estimate.
I have identified three such growth stocks that have a sticky product and a huge market to tap. So far, the management has shown strong performance.
Lightspeed POS (TSX:LSPD)(NYSE:LSPD) stock has already surged more than fivefold in over two years. So when I say I expect the stock to triple in three years, I am expecting its growth to slow. And I have a good reason to believe that.
Lightspeed had a great last year as investor plugged in their expectation in the omnichannel platform. The pandemic brought e-commerce to every household. The company saw a significant uptick in the number of merchants using the platform.
And it is not just Canada, but retailers and restaurants world over are joining the platform. Lightspeed now has a sticky product, so it is time to tap the market. It has gone on an acquisition spree making strategic acquisitions accretive to its revenue. That is how its 2020 revenue more than doubled.
The next is the company’s management. The founder Dax Dasilva is the CEO and he is actively syncing innovations and acquisitions and converting them into revenue. For 2021, he is eyeing Lightspeed Payments, Suppliers Network and, Lightspeed Capital for growth.
Nuvei (TSX:NVEI) stock has more than doubled in less than a year. Thi growth came thanks to the growing acceptance of digital products and digital payments, especially during the pandemic. Most companies operating in this segment of fintech showed remarkable growth. Nuvei took this opportunity and launched its initial public offering (IPO) in September 2020.
Nuvei continues to see strong growth, especially in e-commerce. Its revenue surged 80% year-over-year in the first quarter and expects it to grow by 66.5% in fiscal 2021. MarketsandMarkets expects the global payment processing solutions market to grow at a compounded annual rate of 10.2% between 2020 and 2025.
Nuvei is a new player and has ample of the untapped market. It is striving to make its products sticky by adding new alternate payments methods and geographic locations through acquisitions.
As for the management, it is s founder-managed company.
Dye & Durham
Another successful pandemic IPO belongs to Dye & Durham (TSX:DND). Its stocks started trading a year back in July 2020. And in a year, it has tripled. It can repeat this growth, but likely not in a year. This time it might take a little longer, probably three years. This software company caters to legal and business professionals, helping them become more efficient.
Its niche product is so sticky that business clients sign long-term contracts. The value it delivers to customers by improving their efficiency far outweighs the cost Dye & Durham charges for its software solutions.
Hence, there’s little doubt that the company will continue to enjoy sustainable cash flows. Now comes the growth. In the quarter ended March 31, its revenue surged 96%, and it operated at an adjusted EBITDA margin of 56%. This growth reflects in its stock price.
Dye and Durham is growing organically and through acquisitions, 19 so far. The niche nature of its business leaves a huge market to tap. The company has received an acquisition offer, but I am confident it might refuse the offer. After all, CEO Matthew Proud didn’t found the company and took great care to launch an IPO, only to give it away.
A foolish thought
A Reuters analysis noted that founder-led tech firms outperformed hired-manager companies last year. While founder-led companies tend to deliver high growth, they come with high risk. So diversify your portfolio well.