There is only one overriding reason why an investor would take the above-average risk of owning a growth stock. It is the expectation of above-average returns. Things don’t always work out that way, of course. Sometimes a highly touted growth stock fails. Other times, it may be years before a transaction truly unfolds in a way that makes its risk and opportunity cost worth the wait.
With that as a backdrop, here’s a closer look at three growth names that could deliver huge long-term gains, but will likely take a long time to bear fruit as hoped. None of them have exactly been bullish cries lately, and they might not be a crowd pleaser for the foreseeable future.
Still, the three stocks below are arguably undervalued right now, making them solid additions to most portfolios.
When investors think of artificial intelligence stocks, C3.ai ( AI -2.35% ) is not a name that usually comes to mind. The company typically operates behind the scenes of the industry, delivering software that empowers organizations to connect to the power of artificial intelligence (AI). The company’s C3 AI Energy Management platform, for example, helps utilities reduce costs and improve the efficiency of their power generation. In total, C3’s software currently helps its customers collectively make around 1.7 billion predictions every day.
There’s never been a better time to be in business. Technology Market Research Team Gartner estimates that the artificial intelligence software market is expected to grow more than 21% this year to reach $62.5 billion. Another market research and technology consulting firm, IDC, predicts this type of growth will continue at least until 2025.
Investors should be aware that C3.ai is not yet profitable despite growing its revenue by more than 30% for a few years now. It’s also not expected to make its way into the black this year, or next year for that matter. In fact, his loss is expected to get worse in 2022 and 2023.
As mentioned, however, this is a long-term idea. The risk of owning it is modest compared to the growth prospects that investors will gradually price in as the company makes measurable progress toward profitability.
While C3 is anything but a household name, the growth stock Shopify ( STORE -6.33% ) is much more likely to ring a bell. In case you’re not familiar, this company helps small (and not-so-small) businesses set up and run their own e-commerce operations.
The rise of Shopify is really a rejection of all sorts of Amazon. While Amazon.com is the undisputed king of e-commerce, it’s easy for the site’s third-party sellers to get lost in a sea of competition. In fact, Amazon itself is often that competitor, potentially poaching a customer that a salesperson brought to the site. Add to that the fact that Amazon — rather than the seller — ultimately owns those customer relationships, and it’s easy to see why companies are looking for other ways to connect with consumers online.
This is one of the main reasons why Shopify was able to extend its meteoric growth streak last year, increasing its revenue by 57% compared to the 2020 count. Operating profit almost tripled during the period in question, with the company settling into its relatively new profitability.
That said, there is every reason to expect several years of continued growth at a comparable rate. In its recent look at Amazon’s burgeoning advertising business, e-commerce consultancy Feedvisor notes that only 43% of US brands currently sell anything through their own e-commerce website. This means that the remaining 57% could make such a move in the future.
And they are slowly but surely coming back. Feedvisor reports that 14% of these brands are considering using Shopify’s service, up from 10% just a year ago.
Finally, add SolarEdge Technologies ( SEDG -4.24% ) to your list of growth stocks to buy for their incredible long-term potential.
As the name suggests, SolarEdge is a solar energy company. It’s not a solar panel maker, though. Rather, the organization specializes in an aspect of the industry that is overdue for evolution. It is the management of energy generated by solar panel power systems.
SolarEdge’s flagship product is its inverter combined with an application allowing users to minimize their energy consumption by optimizing the way it is collected and stored. It also offers tailor-made solutions for commercial use. SolarEdge even caters to installers, knowing that this still nascent business can be difficult to navigate.
While solar panels are anything but a new idea, much of the industry’s growth is ahead of it rather than behind it. The US Energy Information Administration (EIA) reports that at the end of last year, less than 3% of the nation’s electricity was generated by solar power systems. Yet in January, the same EIA reported that half of this year’s power generation capacity growth will come from solar panel installations.
The rest of the world isn’t much further along in terms of solar power use, paving the way for massive growth for the industry as a whole – and SolarEdge Technologies in particular. Analysts expect revenue growth of 47% from the company this year, followed by sales growth of more than 25% next year. Earnings per share are expected to nearly double over this two-year period.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.