Investors spend the extra effort to research growth stocks and construct their portfolios with the hopes of outperforming the stock market. It’s possible for some growth stocks to become multibaggers for patient investors. However, these same stocks may go through sharp declines on the way to their full potential.
Investors should look for corporations that exhibit impressive financial growth, rising profit margins and competitive moats. Stocks with these three factors have a greater chance of outperforming the broader market. These three growth stocks check off those boxes and can generate high returns for long-term investors.
CrowdStrike (CRWD)
The cybersecurity firm has an impressive recurring revenue model and continues to gain market share while most of its competitors are experiencing challenges. CrowdStrike (NASDAQ:CRWD) achieved 34% year-over-year (YoY) revenue growth in Q4 FY24 and $53.7 million in GAAP net income. The company reported a GAAP net loss of $47.5 million in the same period last year.
The company’s shift to profitability and rising margins bode well for long-term investors. CrowdStrike’s $3.44 billion in annual recurring revenue and good guidance suggest that growth can continue. The stock’s only weakness is its lofty valuation. Investors will have to accept a 76-forward P/E ratio if they want to buy shares at current levels.
The stock looks more promising on any dips, but most analysts aren’t waiting. The stock has a Strong Buy rating and a projected 33% upside from current levels. The highest price target of $435 per share suggests the stock can gain an additional 46%.
E.l.f. Beauty (ELF)
E.l.f. Beauty (NYSE:ELF) is gaining more traction in the beauty industry. It has reported 20 consecutive quarters of growth and looks poised to continue that streak. The cosmetics company gained 305 basis points of market share while delivering 85% YoY net sales growth. Net income jumped by 41% YoY.
Investors should feel encouraged about the company’s updated fiscal 2024 outlook. The previous outlook suggested revenue would reach $901 million at the midpoint. However, new guidance implies $985 million at the midpoint. Guidance for adjusted diluted earnings per share also increased from the $2.47 to $2.50 range to the $2.84 to $2.87 range.
The company focuses on clean, cruelty-free and vegan products. E.l.f. Beauty got its start as an online disruptor and is now becoming mainstream. The stock has gained 24% year-to-date and has soared by 1,300% over the past five years. Analysts believe the stock has more room to run with an average price target that implies a 17% gain.
American Express (AXP)
American Express (NYSE:AXP) has done quite well for long-term investors while offering a reasonable 19 P/E ratio. The stock has gained 27% year-to-date on its way to a 102% gain over the past five years.
Revenue and profits are both on the upswing. These figures increased by 11% and 33% YoY, respectively, in Q1 2024. Revenue growth was in line with the company’s multi-year plan, while net income growth was a pleasant surprise. The fintech firm plans to generate annualized 9% to 11% revenue growth and EPS growth in the mid-teens over the next five years.
The company can achieve those long-term objectives as more Millennials and Gen Z consumers open American Express credit cards. More than 60% of the company’s 3.4 million new card acquisitions came from those cohorts. American Express is a premium brand with a lower valuation than other credit and debit card giants. Profit margins are expanding, and that should be the case for multiple years based on management’s long-term goals.
On this date of publication, Marc Guberti held a long position in ELF. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.