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Investors looking for growth often seek companies with rapidly rising revenue. These companies rarely offer dividends, value, or a modest risk profile, but companies experiencing surging sales may offer the opportunity for significant share price appreciation.
It’s rare for a public company to double its sales in a single year, but it does happen from time to time. Fitbit (NYSE:FIT), Box (NYSE:BOX), and Square (NYSE:SQ) are three companies that may have the best chances of experiencing such growth in 2017.
The market for trackers remains in its infancy
Fitbit generated $1.9 billion worth of revenue in 2015 — a more than 100% increase from 2014, when it brought in $745 million. The maker of wearable fitness trackers is on pace to bring in between $2.5 billion and $2.6 billion this year, which would represent annual revenue growth of around 35%. Still, Fitbit’s best days may lie ahead of it, and its revenue growth could outperform expectations and accelerate in the quarters ahead.
Fitbit’s market is not even remotely saturated. To date, the company has sold fewer than 50 million devices, and many of those (almost 2 million just last quarter) have gone to existing Fitbit owners upgrading to newer products. In a broad sense, virtually every adult on the planet is a potential Fitbit customer, but more realistically, the company could capture a sizable share of the world’s smartphone users. 72% of American adults — about 173 million people — own smartphones. The vast majority of them do not currently own Fitbits.
On a geographic basis, the overwhelming majority (about 80% last quarter) of the company’s revenue comes from North America, leaving ample opportunity for international expansion. Last quarter, the company officially launched in Korea, Japan, and China for the first time.
It’s entirely possible that Fitbit’s products could be marginalized by intense competition, ever-more powerful smartwatches, or disinterest. But if Fitbit’s products remain in demand, the company could generate significant growth in 2017 and beyond.
Demand for Box’s service remains strong
Cloud storage provider Box enjoyed annual revenue growth of 74% in its 2015 fiscal year, and 40% in fiscal year 2016. If its most recent guidance proves accurate, it will enjoy sales growth of around 30% in its 2017 fiscal year, although Box has a history of outperforming its guidance.
Box has enjoyed strong momentum in recent months. Last quarter, it added 5,000 new customers, an all-time high for the company. The company brought on a Chief Marketing Officer, Carrie Palin, in July, and increased its targets for hiring sales representatives for the year.
Box continues to launch new products. Recent introductions include Box for Government and Box Zones. Both help to grow Box’s total addressable market, creating new potential for the company among government institutions and companies with geographic restrictions.
Building an ecosystem around merchant partners
“We’re still in really hyper-growth phase,” said Square CFO Sarah Friar on the company’s May earnings call. Square’s annual adjusted revenue rose 64% on an annual basis last year. If the company’s guidance proves accurate, Square will enjoy adjusted revenue growth of around 45% in 2016, although, like Box, the company has a recent track record of outperforming management’s expectations.
Square’s opportunity for revenue growth lies with its large and growing network of merchant partners. The payment facilitator continues to enjoy rapidly rising gross payment volume — a metric that tracks the amount of goods and services sold using Square’s readers — suggesting that more small businesses are finding more value in its core service. Last quarter, Square’s GPV rose 42% on an annual basis.
The larger opportunity may lie in Square’s ability to sell ancillary services to the small business owners that rely on its credit card readers. Square’s software and data product revenue rose a stunning 130% on an annual basis last quarter. The segment, which includes Square Capital, is composed of Square’s growing suite of small business services. Square continues to unveil and improve its offerings, and as small businesses adopt them, Square’s revenue should surge.
Sam Mattera has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Fitbit. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.