Shopify(NYSE: SHOP) stock has proven an overwhelming success for early investors, soaring more than fivefold since its IPO in mid-2015. And it's not hard to make the case that the e-commerce platform company is only just getting started.
But that also raises the question: Are there any stocks that could potentially put Shopify's returns to shame in the coming years?
We asked three top Motley Fool investors to weigh in to that end. Here's why they like Under Armour(NYSE: UA)(NYSE: UAA), Helios & Matheson(NASDAQ: HMNY), and Zillow Group(NASDAQ: Z)(NASDAQ: ZG).
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This turnaround will keep going
Steve Symington (Under Armour): Shares of Under Armour have surged nearly 50% since I last argued that investors should buy shares of the performance apparel and footwear specialist back in March. That rally included an 18% pop in the month of May after CEO Kevin Plank announced notable progress in the U.S. and strong international demand for Under Armour's first quarter.
But the stock still trades at less than half its 2015 highs -- that is, the highs set before multiple sporting goods retailer bankruptcies led to the slowdown in Under Armour's core U.S. market. More recently, some analysts on Wall Street are finally taking note; two weeks ago, Stifel upgraded the stock after discussions with Under Armour management left them convinced that improved profitability is on the way, in particular as Under Armour works to realign inventory levels with demand by the end of 2018.
So, I think investors would do well to pick up shares of Under Armour before the results of that inventory realignment take hold. As margins expand and Under Armour returns to sustained profitable growth, the stock could easily put Shopify's returns to shame in the coming years.
It's do or die for Helios & Matheson
Anders Bylund (Helios & Matheson Analytics): All right, Helios & Matheson is not an investment for the faint of heart. I bought some shares last week, fully realizing that I might be throwing that money away. Risky business indeed.
But the MoviePass parent also offers the possibility of outsized returns if it can stave off bankruptcy long enough to make a real business out of the movie ticket subscription service. With great risk comes massive returns -- if all goes according to plan.
The largely unknown data analytics company bought into the MoviePass idea in 2016, when monthly fees for the service hovered near $100 for unlimited viewing. In the summer of 2017, those fees were slashed all the way down to $10 per month and the subscriber count immediately started to skyrocket.
Today, MoviePass sports 3 million active subscribers and H&M hopes to reach 5 million by the end of the year. The company pays full price to the movie theaters for nearly every ticket, with the exception of discount deals negotiated with a handful of small theater chains or individual cineplexes. So the more subscribers MoviePass lands, and the more they use the service, the deeper H&M sinks into red ink.
Investors don't like those huge costs at all, sending H&M's share prices 86% lower over the last year. The stock is priced for total disaster, and I realize that the unsustainable losses might indeed lead to a dark end. Let's just say that I wouldn't recommend splurging on the annual plan if your budget is tight, because the company might not be around for that long.
On the upside, H&M does have a plan.
The company hopes to reach a critical subscriber mass that would unlock several legit business ideas. Going back to H&M's data analytics roots, the company could package and sell reports on the viewing habits and preferences of MoviePass subscribers, aiming those documents at data-hungry movie studios and content producers. If MoviePass can prove that its subscribers tend to splurge on popcorn and soda while enjoying their kinda-sorta free movie tickets, it should be able to negotia\ e discount ticket deals with more movie theaters. And the company is already getting into the content side of the movie industry, so that viewers of MoviePass productions end up sending a good slice of those ticket prices right back to the company itself.
If that sounds a lot like the Netflix(NASDAQ: NFLX) model, you'd be right. MoviePass CEO Mitch Lowe was a co-founder of Netflix and served as president of DVD rental specialist Redbox for nearly a decade. Netflix has proven that massive subscriber growth can lead to market-beating success, even if you're not always reporting positive profits along the way.
Yes, I know -- Netflix is an exceptional story that might never be retold by another company. MoviePass may very well run into immovable roadblocks that could cause H&M's stock to go to zero instead of to the stars. My investment in this risky stock is small because I wouldn't be terribly surprised to lose it all.
That being said, I do believe that MoviePass stands a small chance of reaching its ambitious goals -- and even a tiny investment could produce big profits in that case. This is more gambling than investing, but at least I'm having some fun with this speculative little bet.
Profiting on the housing boom
Rich Duprey (Zillow): Flipping real estate may seem so pre-Great Recession, but Zillow is looking to do it on a grand scale that could generate an embarrassment of riches for the real estate information provider.
Analysts predict we're facing a shortage of affordable housing that will drive up prices at a pace exceeding inflation and wage growth. A rising economy, historically low unemployment, rising wages, and increasing consumer confidence are leading a seller's market. Housing prices are forecast to rise 5.7% this year, 4.3% next year, and 3.6% in 2020.
Zillow, which typically matches up homebuyers and sellers, and generates over $1 billion annually from advertising from real estate professionals, is getting in on the action. Using its formidable housing information database, Zillow will generate an instant quote for home sellers who can accept it for an immediate sale. Zillow will then turn around and flip the property for a quick profit.
The risk, of course, is that by cutting out the real estate agent middleman, Zillow will anger them enough that they will no longer advertise on the service. However, because Zillow has become the go-to online housing authority where many buyers at least start their house-hunting experience, it would be difficult for Realtors to not continue advertising with Zillow even though they're competing against them for business.
A rising market may not be as beneficial as a falling one in that sellers may be willing to wait to see if they can get a better price, but buyers would likely be attracted to the pool of housing that would be made available. And if the prices Zillow offers are attractive enough, but still make a profit in the turnaround, it could make up in volume what it might otherwise lose on price.
The potential for Zillow to capitalize on all aspects of the housing market indicates it might make investors flip for the outsized returns it will offer.
Anders Bylund owns shares of Helios and Matheson Analytics and Netflix. Rich Duprey has no position in any of the stocks mentioned. Steve Symington owns shares of Under Armour (C Shares). The Motley Fool owns shares of and recommends Netflix, Shopify, Under Armour (A Shares), Under Armour (C Shares), Zillow Group (A shares), and Zillow Group (C shares). The Motley Fool has a disclosure policy.
