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In the stock market, e-commerce and cloud giant Amazon.com, Inc. (NASDAQ:AMZN) is considered the superhero of growth stocks. Meanwhile, Netflix, Inc. (NASDAQ:NFLX) is the very noteworthy sidekick. But these aren’t the fastest growing stocks on the market.
There is good reason for Netflix and Amazon’s shared reputation. Despite their increasing scale, Amazon and Netflix are among the fastest growing stocks in the world. Just last quarter, Amazon reported revenue growth of 43%, while Netflix reported revenue growth of 40%.
That is pretty impressive considering both Amazon and Netflix are already among the largest companies in the world. Thus, not only are they among the fastest growing stocks, but they are also among the biggest stocks. This combination of size and strength has led to AMZN and NFLX stock being big winners.
But just because these two stocks are the headline growers, that doesn’t mean that there aren’t stocks out there which are growing faster.
Back in March, I highlighted 3 stocks growing faster than Amazon and Netflix.
But things change quickly in the stock market, so let’s take a look at the fastest growing stocks now, in light of earnings season. Indeed, there are a handful of stocks which reported revenue growth in excess of Netflix’s 40% last quarter.
Not all of them are winners. Nor are all of them destined to be like Amazon or Netflix one day. In fact, most of them won’t ever get close to Amazon or Netflix’s size. But a few could, and those few could be huge winners over the next several years.
With that in mind, here’s a list of the 3 of the best growth stocks in 2018, all of whom are growing faster than Amazon and Netflix.
Fastest Growing Stocks #1: Facebook (FB)
The most troubled stock in the FANG group, Facebook, Inc. (NASDAQ:FB), is also the fastest growing. Revenue growth at Facebook last quarter was nearly 50%, basically 10 percentage points higher than what was reported at Netflix and Amazon.
What is driving this growth? Well, no one seems to care at all about a loss of privacy in social media. And that make sense. At the end of the day, consumers are getting Facebook’s platforms (Facebook, Instagram, Messenger, and WhatsApp) entirely for free, and this “for free” value prop seems to outweigh compromised personal privacy.
As such, everyone is using Facebook and its suite of products as much as they ever have. Meanwhile, advertisers continue to pull money from traditional mediums and throw it into Facebook’s advertising ecosystem, which features 1 platform with 2 billion-plus users, 2 platforms with 1 billion-plus users, and 1 platform with nearly a billion users.
This trend will continue. Instagram is clearly dominating ad spend in the youth-oriented market. Just look the recent miserable numbers from Snap Inc (NYSE:SNAP). Clearly, Facebook’s Instagram is winning and Snapchat is losing.
Meanwhile, Facebook is pushing forward with enhanced revenue opportunities through Watch and Marketplace, two features which haven’t even scratched the surface of their potential. Even bigger yet, Messenger and WhatsApp, with a combined 2.8 billion users, have barely begun monetization efforts.
All together, this a huge growth story with longevity. Facebook stock, though, trades at a rather paltry 23.5-times forward earnings. This combination of big growth and cheap valuation should power FB stock significantly higher over the next several quarters and years.
Fastest Growing Stocks #2: Shopify (SHOP)
Shopify Inc (NYSE:SHOP) makes the list of fastest growing stocks for the second time. I’ve been pounding on the table about the digital commerce solutions provider for a while now. And I continue to pound on the table today.
Over the past year, Shopify stock has risen by 60%. That big rise has been driven by a red-hot growth narrative that isn’t slowing down by all that much. Last quarter, revenue growth was 68%. That is basically the same as it was in the prior quarter (+71%) and the year ago quarter (+75%).
The reason for this sustained robust growth is that the company continues to thrive in the overlap of the sharing economy and digital commerce.
The sharing economy is the future. Look no further than mega-successful companies like Uber, Lyft, Airbnb, YouTube, Instagram, and others to see proof of this. Each of these companies has made an absolute killing by taking power from the few and giving it to the many.
Uber and Lyft said you don’t need taxis to get around. All you need is a car. Everyone has a car, so everyone can be a “taxi.” That idea has worked out brilliantly.
Airbnb did the same thing with hotels. YouTube did the same thing with video personalities. And Instagram did the same thing with aesthetic models (think the whole class of Instagram models that became popular simply as a result of Instagram.)
Shopify is doing this same thing in the digital commerce space.
Shopify is saying that you don’t need to be a big and powerful retailer in order to sell stuff online. Everyone has a computer, and everyone has access to Shopify’s suite of digital commerce solutions. Therefore, everyone can be their own “online store” and make money through the internet.
It is a brilliant concept that mirrors the success stories of Uber, Lyft, and Airbnb. But it mirrors them in the secular growth digital commerce market, meaning Shopify’s growth trajectory could ultimately be more impressive.
All together, SHOP stock is a long-term winner. Valuation looks challenged in the near-term, but this stock is one to own for the next 5-10 years.
Fastest Growing Stocks #3: GrubHub (GRUB)
Whereas Shopify is the sharing economy play on digital commerce, GrubHub Inc (NYSE:GRUB) is the at-home economy play on food ordering and delivery.
There is no denying the fact that we are moving increasingly towards the at-home economy. Consumers are doing everything from the convenience of their homes. As opposed to going out and shopping, consumers are now more frequently shopping on Amazon. Likewise, as opposed to going out and watching movies, consumers are now more frequently watching Netflix.
GrubHub fits this same narrative. As opposed to going out and grabbing a bite to eat, consumers are now more frequently turning toward food ordering and delivery apps and having lunch/dinner served directly to them.
GrubHub is the king of this space. That is why revenue growth was 49% last quarter.
This space is also really, really big. That is why, despite increasing competition, GrubHub’s revenue growth trajectory is actually accelerating.
As such, GRUB stock is not only one of the fastest growing stocks in the market, but it also has an exceptionally long runway for that big growth to continue.
There are competitive threats here. Uber Eats is stealing market share away from GrubHub at a very quick rate, and especially so in critical, high-value urban markets. GRUB stock doesn’t appear priced for these competitive threats. The stock trades at nearly 60-times forward earnings.
For these reasons, I’m not a buyer of GRUB stock here and now. But any meaningful pullback of 10-20% should be viewed as a long-term buying opportunity.
As of this writing, Luke Lango was long AMZN, FB, and SHOP.