Investing in growth stocks isn't always easy. Sure, it's fun when momentum is on your side and the stock is racing ahead of the broader market. On the other hand, it stinks when the pendulum swings the other way. Growth stocks tend to be volatile, moving more dramatically than the market in both directions. But over time, a growing, high-quality business will reward investors.
The trick is to act on pullbacks when lower prices create buying opportunities.
Here are three excellent growth stocks. Each has produced market-beating returns over the past decade and has strong growth prospects to continue performing well. I can't promise these stocks won't go lower from here, but there is a good chance that five years from now, investors buying these dips will be glad they did.
It's been a tough start to 2025 for "Magnificent Seven" stocks, including social media giant Meta Platforms (META -5.00%). The stock is grinding lower, shedding 26% from its highs amid a broader pullback in technology stocks. But don't get it twisted; Meta's business is doing swell. The company earned nearly $24 per share in 2024, a staggering 60% jump from 2023. Meta's core business, its social media app family, continues to thrive. Daily active users increased by 5% to 3.35 billion people in Q4 2024, which pours gas on a strong digital ad business that saw pricing increase 10% last year.
Investors could buy and hold Meta Platforms for these reasons alone, but the long-term prize could lie in Meta's artificial intelligence (AI) opportunities. CEO Mark Zuckerberg has led the company head-first into AI, including a wildly successful decision to build and open-source its AI model, Llama, to developers. That move resulted in Llama recently surpassing 1 billion worldwide downloads. Such widespread adoption opens the company up to potential monetization opportunities in the future.
Eventually, AI could significantly contribute to Meta's bottom line. Analysts estimate Meta will grow earnings by an average of 18% annually over the next three to five years, which should continue to help the company fund its AI investments without using too much debt. It's still early in the AI era, but AI adoption looks inevitable given the ongoing investment spree throughout the technology sector. The growth potential makes the stock a compelling value following the recent decline to just 22 times 2025 earnings estimates.
There are more streaming services today than you can shake a stick at. However, Netflix (NFLX -6.63%) remains the original innovator and the market leader with a whopping 301.6 million paying subscribers worldwide. Netflix has been doing this for a while, shifting from rental discs to digital streaming in 2007. The company sits in a fantastic position today. It depended heavily on licensing third-party content in its early years but has steadily filled its catalog with first-party content.
Today, Netflix's studio prowess is to the point that it's airing movie trailers for its upcoming releases. Additionally, the business has become highly profitable because the user base generates far more revenue than it spends to produce new content. As Netflix grows, its deeper pockets enable it to strategically invest in new geographies with culturally diverse hits, such as Squid Games. Netflix is also wading into gaming and live sports to attract more subscribers.
Netflix stock has held up pretty well and only sits about 12% off its high. Analysts anticipate that Netflix's earnings will grow by an average of almost 20% annually over the long term, and the company can utilize a combination of price increases and subscriber growth to achieve that. The stock isn't a bargain at a price-to-earnings (P/E) ratio of 38, but it's a fair price for a top-notch business with such high growth.
Advertising technology is an exciting growth trend as ad dollars shift from old mediums, such as broadcast television and print, to digital. Big technology companies dominate parts of the digital realm, including Alphabet (internet search) and Meta Platforms (social media). The Trade Desk (TTD -5.81%) has thrived as an independent adtech company, operating in other niches, such as websites and ad-supported streaming. Its autonomous technology platform helps match advertising campaigns to their target audiences.
The Trade Desk's stock has tumbled nearly 60% from its high, with most of the damage coming after the company posted disappointing Q4 2024 earnings. The stock traded at a highly aggressive valuation heading into earnings, so the market didn't give The Trade Desk much slack. More importantly, CEO Jeff Green owned the poor performance and reiterated the company's long-term trajectory during the earnings call.
One soft quarter probably shouldn't negate years of high-level performance. Analysts still estimate that The Trade Desk will grow earnings by an average of 23% annually over the next three to five years. The stock's 64% decline has reset its valuation to a P/E ratio of 27.6 times 2025 earnings estimates. That's an attractive price if The Trade Desk hits its growth estimates, making the stock worth scooping up here.
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.