Investors often dream of finding a fast-growing stock early and earning massive gains over time. While such a feat is possible, finding a stock that can grow fivefold in five years is no easy task. Even after you discover a promising stock, poor execution or unexpected changes in the marketplace can derail that growth story.
Despite the possible pitfalls, seeking such stocks is a worthy endeavor, and emerging industries or niches within existing businesses hold such promise. As companies emerge to meet that potential, these three stocks could turn a $1,000 investment into $5,000 within five years.
Admittedly, one can hardly blame investors for losing patience with Roku (ROKU -8.33%). After reaching a closing price of nearly $480 per share in the summer of 2021, Roku went on to lose more than 90% of its value by the end of 2022. Today, it still trades at around 85% below that all-time high.
Nonetheless, Roku's service continued to grow steadily in popularity during that time. Over the last year, the monthly active user base grew 12% to 90 million. Streaming hours increased by 18% over the same timeframe, showing that users continue to spend more time on the platform.
That has allowed it to capture many of the advertising dollars fleeing traditional TV. With its mostly neutral platform and wide audience, Roku has become the leading marketplace for streaming services, viewers, and advertisers to find one another.
Roku has also emerged as the No. 1 platform in the U.S., Canada, and Mexico and has made inroads into Latin America and Europe. To do this, the company sacrificed short-term gains in average revenue per user (ARPU). Still, with ARPU up 4% in the latest quarter, it may finally begin to benefit financially.
Indeed, Roku continues to run at an operating loss. In 2024, it was $218 million, improving from $792 million in 2023. However, that improvement puts profitability within striking distance, and with a price-to-sales (P/S) ratio of around 2.5, it may be positioned to return to the massive stock price growth of earlier years.
Nu Holdings (NU -6.87%) is likely not a familiar name to American investors, despite investor interest from Warren Buffett's Berkshire Hathaway.
Its bank, which operates under the NuBank name, is the largest digital bank outside of Asia. It gained that distinction by transforming the financial landscape in Brazil. The traditional banking system left large swaths of that country's population without access to bank accounts or credit cards, making the market ripe for transformation.
As of 2023, nearly 21 million Brazilians received their first credit card from NuBank, bringing them into the financial system. This was so successful that 58% of Brazil's adult population, about 102 million customers, has at least one NuBank account.
More recently, it has repeated this formula in Mexico and Colombia, attracting 10 million customers and 2.5 million customers, respectively, in the countries. It also plans to enter a country that it has not yet named in the near future.
This strategy drew more than 20 million new customers in the last year alone. Amid these increases, the company's net income in 2024 grew to almost $2 billion, a 91% yearly increase.
Despite that growth, Nu Holdings' price-to-earnings (P/E) ratio stands at just 26. As more investors discover this stock, the relatively low earnings multiple and rapid profit growth should push this stock much higher in the coming years.
Although Reddit (RDDT -10.48%) launched its IPO just over a year ago, it holds the potential to become the most successful social media stock since Facebook parent Meta Platforms.
The site builds its user experience through news aggregation, rating content, and forums, building engagement and making itself a go-to when users seek advice to solve a problem. This interest has positioned it to draw increased revenue through advertising.
Ad revenue continues to improve amid increased usage of the site. Its daily active uniques base has grown to 102 million, a 39% increase from year-ago levels. If accounting for weekly active uniques, that number rises to 379 million.
Moreover, none of Meta's sites are well-positioned to offer this type of information, reducing the odds that it will compete directly with Reddit.
Investors will have to be patient with its financials. Global ARPU rose 23% in 2024 to $4.21, a testament to the site's growing influence. Nonetheless, its net losses spiked to $484 million in 2024 (versus $91 million in the prior year) as the company invested more in itself.
Still, $801 million in stock-based compensation, a non-cash expense, led to the net loss. With that, Reddit generated $216 million in free cash flow, meaning it generated more than enough revenue to meet its expenses.
The recent drop in the stock price has also taken its P/S ratio to 13, down from 26 in February. With that discounted stock price, Reddit's investments in its business and rising ARPU could spell opportunity for investors who buy under current conditions.
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