A stock market is where you can put your money to work in such a way that it not only fights inflation but also appreciates your capital and makes you wealthy. It is all about choosing the right stocks and staying invested in them for a long time. This buy-and-hold investing strategy helps you become rich slowly.
One such stock that has played a pivotal role in generating wealth is Descartes Systems (TSX:DSG), a supply chain management solution that helps companies manage inventory, logistics, documentation, and regulatory and customs compliance when supplying goods and services.
Descartes Systems’s growth drivers
Descartes Systems is a cloud-based solutions provider. The cloud frenzy picked up in 2010, as companies looked to make their operations efficient. After the 2008 financial crisis, technology picked up momentum. 2010-2020 was the decade when these internet-based tech companies ballooned as the 4G rollout made the internet accessible from mobile devices.
Descartes Systems made the traditional supply chain management operations efficient using software technology. More and more customers started using its solutions as the trade complexities increased due to geo-political, economic, and business trends, like the 2018 U.S.-China trade war, Brexit, the pandemic-induced e-commerce boom, and the 2022 supply chain disruption from the Russia-Ukraine war. All these events improved the profit margins of Descartes as it relies on scale.
| Year | Revenue Growth | EBITDA Margin |
| 2015 | 13% | 30% |
| 2016 | 8.3% | 33% |
| 2017 | 10.2% | 34% |
| 2018 | 16.5% | 34% |
| 2019 | 15.9% | 34% |
| 2020 | 18.4% | 38% |
| 2021 | 7.0% | 41% |
| 2022 | 21.8% | 44% |
| 2023 | 14.4% | 44% |
More customers started using its services, and existing users started using more solutions of Descartes. Its earnings before interest, taxes, depreciation, and amortization (EBITDA) margin improved from 30% in 2015 to 44% in fiscal 2023.
Trade complexities will only increase as business dynamics change and the world gets smaller.
A $5,000 investment in Descartes Systems in 2010 is this much today
If you entered the supply chain solutions growth trajectory earlier in 2010 with $5,000, you would have purchased 791 shares of Descartes at $6.32 per share. Today, these shares are trading at $97.11.
Your $5,000 investment in January 2010 would be $76,814 today. The stock grew your money 15-fold in 13 years. In percentage terms, the stock grew at a compound annual growth rate (CAGR) of 23.4%. And it is still growing at a CAGR of over 20%.
As Descartes Systems is affected by trade volumes, the stock price falls on macroeconomic weakness. But it has the potential to recover and grow further as the economy normalizes. You can still buy this stock in a bear market and hold it for another 10 years. The stock has the potential to grow your money severalfold.
What is in store for Descartes Systems?
Descartes Systems stock has dipped 8.86% since July as rising interest rates have slowed consumer spending and business activity. Now is a good time to buy the stock while it trades below $99. If a global recession hits later this year, the stock could fall 20-30%. So, keep an eye on the stock and buy it at the dip. If the stock retains its 20% CAGR, your $5,000 investment could grow to $30,958 in 10 years.
Descartes stock has the potential to continue its 20% growth trajectory for the coming few years, driven by North American natural gas exports and e-commerce momentum.
Investing tip
Descartes is one of the few stocks in a long-term growth trend. If you invest $5,000 in two or three long-term growth stocks like Constellation Software, your portfolio could grow significantly. Some of your investments could generate strong returns and some average returns. Suppose you have invested $5,000 each in eight stocks in a buy-and-hold strategy. Even if three stocks generate strong returns, they could make up for the weak returns of the others and make you rich gradually.
