Photo credit: www.fool.com
Investing in growth stocks over the long term is one of the most effective approaches to wealth accumulation. This strategy allows investors to benefit from ongoing capital appreciation as their investment portfolios’ values rise over time. Patience is crucial—investors must be ready to hold onto these stocks for years or even decades to witness substantial growth in revenue, profits, and free cash flow. As companies become increasingly valuable, their corresponding share prices typically follow suit.
When selecting robust growth stocks, investors should prioritize companies that exhibit a significant competitive advantage, possess well-known brands, and have proven histories of revenue and profit expansion. It’s beneficial if these firms share a clear strategy for long-term growth and operate within a large total addressable market (TAM), which signifies ample potential for sustained growth.
Here, we highlight three compelling growth stocks worth considering for your investment portfolio.
1. Lululemon
Lululemon (LULU 0.40%) specializes in producing and selling sports clothing and footwear ideal for activities like yoga and running. The company’s financial performance has improved consistently from fiscal 2022 to 2024, guided by its “Power of Three x2” strategic initiative. Earlier, a similar plan introduced in 2019 enabled Lululemon to exceed its goals two years ahead of schedule, prompting a new five-year initiative aimed at doubling its fiscal 2021 revenue of $6.5 billion by 2026. The following table illustrates Lululemon’s growth trajectory in both revenue and profits.
| Metric | 2022 | 2023 | 2024 |
|---|---|---|---|
| Revenue | $6.257 billion | $8.111 billion | $9.619 billion |
| Operating income | $1.333 billion | $1.328 billion | $2.176 billion |
| Net income | $975.322 million | $854.8 million | $1.550 billion |
Data source: Lululemon. Fiscal years end Jan. 31.
The company also saw a significant increase in free cash flow, rising from $994.6 million to $1.6 billion from fiscal 2022 to 2024.
As Lululemon enters the first three quarters of fiscal 2025, momentum remains strong. Revenue jumped 8.8% year over year to reach $6.98 billion, and operating income increased by 20.1% to $1.46 billion. Net income for this period was $1.07 billion, reflecting a 21.1% year-over-year growth, along with positive free cash flow of $417.1 million.
Although store sales in the American market dipped by 2%, Lululemon’s international division experienced a remarkable 25% increase, offsetting domestic declines. In the latest quarter, Lululemon opened 28 new stores, bringing its global total to 749.
With the fourth-quarter guidance updated to project net revenue between $3.56 billion and $3.58 billion—an 11% to 12% rise compared to the previous year—the company showcases confidence in its performance. It also revised its earnings per share (EPS) forecast upward to $5.81 to $5.85, enhancing expectations from an earlier range of $5.56 to $5.64.
The management’s focus remains on three core strategies from the “Power of Three x2” plan: product innovation, enhancing customer experiences, and expanding international presence to facilitate continued revenue and profit growth.
2. FactSet
FactSet (FDS -1.31%) operates a comprehensive digital platform that provides financial data and analytics to a diverse range of clients, including over 8,200 global wealth and investment management firms. FactSet’s consistent growth over the years is evident in its increasing revenue and net income, outlined in the following table.
| Metric | 2022 | 2023 | 2024 |
|---|---|---|---|
| Revenue | $1.844 billion | $2.086 billion | $2.203 billion |
| Operating income | $475.482 million | $629.207 million | $701.299 million |
| Net income | $396.917 million | $468.173 million | $537.126 million |
Data source: FactSet. Fiscal years end Aug. 31.
FactSet has maintained a trend of positive free cash flow, increasing from $487.1 million in fiscal 2022 to $614.7 million by fiscal 2024. Moreover, the company has steadily raised its quarterly dividend for more than 20 years, currently at $1.04 per share, marking a 6.1% year-over-year increase. This blend of growth and dividends makes FactSet an attractive investment.
For the first quarter of fiscal 2025, which ended on November 30, 2024, FactSet reported a 4.9% revenue growth year over year, reaching $568.7 million, while operating income edged up by 1.2% to $191.3 million. Net income saw a modest increase to $150 million, marking a 1% rise compared to the preceding year, with another round of positive free cash flow at $60.5 million.
FactSet is not only benefiting from organic growth but also through strategic acquisitions that enhance its platform capabilities. Noteworthy transactions include the acquisition of Idacity, a data structuring technology company in July 2023, and Irwin, a capital markets service provider, in October 2024. Such moves bolster FactSet’s service offerings, positioning the company to serve its growing clientele more effectively.
Incorporating conversational artificial intelligence into its platform to improve customer productivity and decision-making has been a recent advancement for FactSet. During a previous Investor Day, the management highlighted a significant total addressable market exceeding $40 billion, providing ample opportunity for further profit and dividend growth in the future.
3. Full Truck Alliance
Full Truck Alliance (YMM 5.00%) connects shippers and truckers through a digital platform offering various logistics services, including freight matching and brokerage. The company is transforming the supply chain landscape in China, with notable revenue growth from RMB 4.7 billion in 2021 to RMB 8.4 billion in 2023, alongside a transition from a net loss in 2021 to a net income of RMB 2.2 billion in 2023.
| Metric | 2021 | 2022 | 2023 |
|---|---|---|---|
| Revenue | RMB 4.657 billion | RMB 6.734 billion | RMB 8.436 billion |
| Operating income | (RMB 3.796 billion) | (RMB 162.002 million) | RMB 997.429 million |
| Net income | (RMB 4.173 billion) | RMB 406.762 million | RMB 2.212 billion |
Data source: Full Truck Alliance. Fiscal years end Dec. 31. Note: RMB = Renminbi; 1 RMB is worth about $0.14 at current exchange rates.
Full Truck Alliance has seen improvements in cash flow as well, achieving positive operating cash flow of RMB 2.27 billion in 2023, along with free cash flow of RMB 2.17 billion after struggling in the previous two years.
For the first nine months of 2024, revenue grew by 33.8% year over year, reaching RMB 8.06 billion, with operating income more than doubling to RMB 1.64 billion. Net income surged by 54% year over year to RMB 2.5 billion.
Key operational metrics also indicate a positive trend, with monthly active users (MAUs) among shippers increasing by 33.6% year over year to 2.84 million, and fulfilled orders climbing 22.1% to 51.9 million. This growth illustrates the platform’s effectiveness in connecting shippers with truckers, enhancing the efficiency of goods movement.
Full Truck Alliance benefits from strong network effects, making its service appealing for both truckers and shippers. As it becomes easier for shippers to find truckers, utilization rates for truckers improve, which in turn enhances order handling for shippers. This creates a mutually beneficial scenario that promotes loyalty and invites new customers.
During the Investor Day session in 2023, management discussed a massive potential market in China’s transportation sector, valued at approximately RMB 7 trillion. About RMB 5.5 trillion of this market is dedicated to full-truckload (FTL) and less-than-truckload (LTL) logistics, with additional potential in express deliveries. A substantial portion of the market remains untapped for online services, suggesting continued growth avenues for Full Truck Alliance as it addresses logistical challenges faced by both shippers and truckers.
Source
www.fool.com