With the stock market off to a bumpy start in 2022, there isn’t a better time to take a long-term view of your portfolio. While the technology-centric Nasdaq 100 index is down 14% for the year already, it’s important to remember that it has gained 481% over the last 10 years.
Rather than setting your sights on investing for the end of this year, it might be more beneficial to focus on the end of this decade instead. Here are two high-growth stocks poised for fivefold growth by 2030, based on their unique business models and strong financial performance.
1. The case for Axcelis Technologies
The semiconductor sector has been hot over the last two years, with consumer goods trending further toward digitization, and therefore requiring more advanced computer chips to operate. In addition, the pandemic stifled semiconductor production due to lockdowns across Asia and Europe. Thanks to those two factors, Axcelis Technologies (NASDAQ:ACLS) has enjoyed soaring demand for its products.
Axcelis makes ion implanters critical to the chip fabrication process, so as semiconductor manufacturers increase their production capacity, they require more of the company’s equipment to make that happen. Axcelis has shifted its focus toward the automotive segment, which is suffering from crippling chip shortages leading to soaring vehicle prices. The company has made a string of announcements highlighting large shipments of its “power device” line since September 2021, and that’s improving both the top and bottom lines of its financial results.
Analysts expect Axcelis to deliver $774 million in revenue during 2022, which would mean a compound annual growth rate (CAGR) of 27% since the pandemic began in 2020. But even more significant is the company’s expected earnings per share, which could be as high as $3.66 this year — for a CAGR of 58% over the same period.
Assuming both Axcelis’ price-to-sales and price-to-earnings multiples remained the same, the company would need to grow those metrics at a rate of 23% per year to turn $50,000 into $250,000 by 2030. As its recent results suggest, it’s comfortably meeting that target.
It’s plausible that growth in the semiconductor sector will slow as recent supply shortages catch up with demand, but Axcelis’ stock currently trades at a 23% discount to its peers represented by the iShares Semiconductor ETF. The ETF trades at a price-to-earnings multiple of 30 right now, compared to Axcelis’ 23, based on 2021 earnings. So despite its strong operational performance recently, investors can grab this stock at a discount to the broader sector.
2. The case for Duolingo
Outside of the social media sphere, not many companies have a total addressable market of 1.8 billion customers. But that’s how many people Duolingo (NASDAQ:DUOL) estimates are currently learning an additional language right now, worldwide. Duolingo’s desktop and mobile language-education application turns the learning experience into a game — with competitive twists — and it’s currently dominating the industry.
The app is the highest-grossing product in the education category in both Apple‘s App Store and Alphabet‘s Google Play Store. Since inception, Duolingo has generated over 500 million downloads, suggesting that it’s only tapped a fraction of its addressable market — but that market is also growing materially.
In 2020, the company experienced 400% growth in India, as hundreds of millions of citizens in that country are in the process of gaining internet access for the very first time. Duolingo envisions an enormous opportunity in developing economies, as many people opt to learn global languages like English for work or education purposes.
Duolingo monetizes its services through advertising, subscriptions (which unlock additional features), and one-off courses, and it’s generating significant revenue growth. Revenue is expected to climb from $70.7 million in 2019 to an estimated $322.7 million in 2022, for a compound annual growth rate of 65%.
Duolingo is currently growing revenue far beyond the 23% it needs for its stock to rise fivefold by 2030, assuming its price-to-sales ratio remains constant. But the company also has significant upside to its growth potential, as it estimates the market for digital-based language learning will exceed $47 billion by 2025.
Given that the company is already a dominant player in the industry, it stands to reason it could materially expand on its expected revenue in 2022, and beyond. That presents a promising investment case for Duolingo’s stock, especially for investors with their eye on 2030.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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