With this list of the best growth stocks to buy, you might uncover the “next big stock.” For many investors, it’s a race to see who can invest in the next up-and-coming companies first. It’s also a bit of a competition, since investors might have different opinions on the same company.
If you’re able to consistently discover hidden gems in the stock market, then you’ll undoubtedly make lots of money. One of the most common ways to do this is to invest in growth stocks.
Growth stocks are stocks whose businesses are growing incredibly quickly. This could be the result of an increase in things like earnings, users or memberships. These companies also expect their growth to continue well into the future. Growth companies tend to be small-to-medium cap stocks that are disrupting an industry. However, they could also be larger companies that are pivoting their core businesses.
In general, growth stocks are focused on growing revenues and reinvesting that money back into the company. This means that they usually do not pay dividends.
Another thing to note is that the prices of growth stocks usually reflect future expectations. If a company fails to meet expectations, then its stock could suffer. It’s a little bit like how the #1 pick in the NBA draft might be expected to score 25 points a game. If this player ends up averaging just 15 points per game, then fans and management would be disappointed.
With that said, let’s take a look at four of the best growth stocks to buy right now…
Note: I’m not a financial advisor and am just offering my own research and commentary. Please do your own due diligence before making any investment decisions.
Growth Stocks to Buy
- SoFi Technologies (Nasdaq: SOFI)
- Chewy (NYSE: CHWY)
- Shopify (NYSE: SHOP)
- Figs (NYSE: FIGS)
SoFi Technologies
Full Disclosure: I own a small position in SOFI.
The first growth stock to look at is in the financial industry. In general, the financial industry has experienced massive changes over the past decade or two. In almost every sector, fintech startups are cropping up to offer consumers a better experience. For example, Robinhood, Webull and Acorns have disrupted investing by making it much more accessible for consumers. Square has disrupted commerce by making it easier to transact payments. Venmo and Square Cash have disrupted peer-to-peer payments by making it easy to send money to friends.
Right now, SoFi is in a good position to disrupt the banking sector. SoFi is kind of a jack-of-all-trades financial app. Its main products are focused on lending. However, it also has products for banking, investing and money management. In this sense, SoFi wants to be a one-stop-shop for your finances. It’s disrupting the industry by making it easier to handle your banking via its user-friendly digital experience.
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Right now, lending makes up the bulk of SoFi’s business, accounting for about 86% of its revenue in 2020. However, SoFi expects this division to shrink to less than half of the company’s business by 2025 as it diversifies into other products. Also, a SoFi tweet in late September confirmed that it’s “well underway” on a project to get a bank charter.
Without a bank charter, SoFi has had to partner with third-party banks to underwrite its loans. These banks charge SoFi a fee, which cuts into the profitability of its business. If this bank charter is finalized, then SoFi’s margins on lending should improve.
The main thing that makes SoFi one of the best growth stocks to buy is that almost all aspects of its business are rapidly growing.
In its second quarter earnings presentation, SoFi announced its ninth straight quarter of accelerating member growth. Here are a few other stats from the first two quarters of 2021:
- Membership grew by 110% (first quarter) and 113% (second quarter).
- Product usage grew by 121% and 123%.
- Financial services products grew by 273% and 243%.
- Revenue grew by 120% and 100%.
Insiders are also showing faith in SoFi’s business, with CEO Anthony Noto recently acquiring another 7,150 shares of SoFi.
The final thing that stands out is just how customer-centric SoFi’s platform is. In particular, its About Us page talks about helping its users reach financial independence. Marketing like this can go a very long way, especially with younger demographics. It’s also not something that you’re likely to read on a bank like Wells Fargo’s website.
With that said, keep in mind that a lot of SoFi’s growth is already factored into its stock price. It will need to meet investors’ high growth expectations for the stock to continue trending up. Also, the short-term direction of SoFi’s stock will likely depend on whether it receives the banking charter.
SoFi went public via SPAC in late 2020 at $11 per share. The price peaked at around $25 per share but has since come back down to the $16 level.
Chewy
The second of the growth stocks to buy comes in an unlikely industry… pet food. Chewy is an online retailer of pet food and other pet-related products. In 2017, it was acquired by PetSmart for $3.35 billion. This was the largest acquisition of an e-commerce business at the time.
Chewy is in the process of disrupting the annual $99 billion U.S. pet industry. It’s doing this by offering consumers an easy way to get pet supplies shipped directly to their homes. With restrictions related to the pandemic in effect for much of 2020, Chewy was an obvious choice for pet owners.
While the pandemic was a boon for many companies, Chewy may have benefited the most. First off, 2020 saw a drastic increase in the number of pet adoptions. You might even have friends who welcomed a new furry friend into their home. I myself actually adopted a puppy. With so much time spent isolated at home, the pandemic was an obvious time to adopt. More pet owners means more potential customers for Chewy.
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Second, people were less inclined to leave their homes during the pandemic. People were less likely to visit the grocery store, PetSmart or wherever they normally bought pet supplies. Say hello to Chewy’s user-friendly online store that delivers pet products to your home.
Additionally, what makes Chewy exciting as a growth stock is that a dog or cat is not a one-off expense. Everyone who adopted a pet during the pandemic now has to buy food and supplies for the next 10 to 15 years. If they signed up for Chewy during the pandemic then there’s a good chance that they’ll continue to use its service.
Chewy’s revenue has been growing consistently at an average of 49% per year over the past four years. That said, it’s worth noting that Chewy currently has a P/E ratio of over 3,000. This means that its stock is very richly valued, with high expectations for future growth.
Chewy went public in 2019 at $22 per share. The price peaked at $120 and has since dropped down to the $60-to-$70 level.
Shopify
Full Disclosure: I own a small position in SHOP.
Shopify is a company that makes it incredibly easy to create an online store. By “easy,” I mean it literally takes minutes. This helps make it one of the best growth stocks to buy.
With Shopify’s price hovering around $1,300, you might wonder how this could be a growth stock. However, I’d put Shopify today in a spot where Apple was in 2010. By 2010, almost everybody had heard of Apple and was already sold on its products. Apple was already on iPhone model #4 at the time. In 2010, it was fair to ask how much more Apple could grow. Can it really just keep churning out iPhone models? Well, Apple is now a $2 trillion company and just released the iPhone 13. So yes. Apple’s stock also increased about 1,000% during the 2010s. This made it one of the best growth stocks to buy.
Another big comparison between Apple and Shopify is that there are relatively few competitors to its main product. For Apple, Android was its biggest competitor. After the first few models, Apple didn’t have to convince consumers to buy a smartphone anymore. It just had to convince consumers that the iPhone was better than the Android. (Remember the “Mac vs. PC” commercials?) There is a subtle, but important, difference between the two.
For Shopify right now, its main competitors are WordPress and WooCommerce (not publicly traded). Wix, Squarespace and other web providers have their own solutions but are not nearly as popular. The other option would be for consumers to build their own e-commerce website from scratch. However, this isn’t a skill set that many people have.
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I realize that it might be aggressive to compare Shopify to the world’s most valuable company. I’m not saying that Shopify will grow into the monster that Apple is. However, if Shopify achieves just an ounce of Apple’s success, then its stock will be just fine.
Shopify’s revenue has been up by more than 50% almost every year for the past five years. In 2020, it grew revenue to a record $2.93 billion. This was an increase of 86% from the previous year. 2020 also marked its first year of profitability, with $319 million in net income.
Shopify’s stock is up about 3,000% over the past five years.
Figs
The last of these best growth stocks to buy is the medical apparel company Figs. Since the medical field has been around forever, it’s surprising that we haven’t seen a company like Figs before. If you don’t work in the medical field, Figs are sort of like the Nike of scrubs. Instead of wearing medical apparel that feels like tissue paper, you can rock Figs, which are much more comfortable.
According to the U.S. census, the healthcare industry is one of the largest and fastest-growing in the U.S. In 2019, there were 22 million healthcare workers. This is about 14% of all U.S. workers.
In case there was any doubt, I don’t work in the medical field. However, I have quite a few friends who do. I also feel like I can tell just by looking at a doctor that regular scrubs are super uncomfortable. They look like clothes that are designed to be worn once and then thrown out.
To the best of my knowledge, I’ve never heard of another company making premium medical wear. The medical community is so close-knit that it’s easy to see how Figs could spread like wildfire. In a matter of years, it could go from an unknown brand to “the cool thing to wear around the hospital.” On top of this, medical professionals are known for working brutal hours. If you’re going to be on the clock for 12 hours, you may as well be comfortable.
Figs are more costly than regular scrubs. However, since healthcare is one of the highest-paid professions, this shouldn’t be a big issue.
Figs went public in the summer of 2021 so there isn’t a lot of financial information available about the business yet. That said, Figs’ annual revenue grew by 138% in 2020 to $263 million. Despite being such a young company, it was also successful in turning a profit of $49 million in 2020. Revenue has continued to grow in 2021.
In 2021, Figs posted year-over-year revenue growth of 172% in the first quarter as well as second quarter growth of 57%.
Figs stock was listed at $28 per share. It quickly jumped to $50 before dropping back below $40.
I hope that you’ve found this article with the best growth stocks to buy right now valuable! As usual, all investment decisions should be made based on your own due diligence and risk tolerance.
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