Growth stocks are one of the best assets to build wealth over the long term. If you carefully choose stocks of growing companies, it is not that difficult to grow your money fivefold over a 10-year period.
Turning $1,000 into $5,000 over that period implies a compound annual return of 17%. The trick is to invest in strong companies that can sustain this level of growth in their annual revenues or earnings. Stocks can be volatile in the short term, but they follow the company's growth over the long run.
To assist you in your search, three Fool.com contributors believe Coupang(NYSE: CPNG), RH(NYSE: RH), and Toast(NYSE: TOST) would make great additions for a growth investor's portfolio. Here's why they are smart buys right now.
Meet the Amazon of Korea
John Ballard (Coupang): Retail stocks fell deeply out of favor on Wall Street over the past few years. High inflation and interest rates have weighed on consumers' appetite to shop for clothes and electronics, but valuations for some of the best growth stocks in retail are attractive right now.
Coupang is South Korea's leading e-commerce company. Revenue has exploded from $4 billion in 2018 to more than $28 billion on a trailing-12-month basis. It's still a small company in a global e-commerce market worth more than $4 trillion and growing.
Coupang is winning over customers with a growing selection of items and same-day shipping, which is not easy in densely populated cities like Seoul. Coupang had to build a special system to deliver packages in these areas, and it's starting to adapt what it has learned in South Korea to other markets. The company is currently laying the groundwork for long-term growth in Taiwan, and management is seeing great results so far.
But management believes there is still a tremendous opportunity to grow spending with existing customers. Revenue from food delivery, content streaming, and payment services -- what the company calls "developing offerings" -- grew 146% year over year in Q3.
Coupang has a lot of levers to drive growth. It also acquired leading online luxury goods platform Farfetch, which could provide attractive cross-selling opportunities with its WOW membership program.
The stock is trading at less than 1.5 times trailing revenue, which is reasonable for a fast-growing e-commerce business. Assuming the stock continues to trade at this price-to-sales multiple, Coupang needs to deliver between 15% and 20% annualized revenue growth for investors to grow their investment fivefold in the next 10 years. There's enough opportunity ahead for the stock to deliver those returns.
A growth stock to get behind
Jeremy Bowman (RH): RH, the company formerly known as Restoration Hardware, has been a big winner over its history, up more than 1,200% since its 2012 initial public offering.
Like other home furnishing stocks, RH has faced some headwinds from the housing market, but it has responded to that with a revamped product lineup and new sourcebooks, and its sales growth is now accelerating.
RH stock is now up 75% since its low in September, and in addition to the momentum in its recovery, there are a number of other reasons to bet on the stock over the long term.
First, the company recently embarked on an expansion into Europe, and the early results look promising. At RH England, its first gallery in Europe, sales were up 42% in the second half of 2024 and it's on track for $31 million in sales in its second full year. The company is also planning on opening locations in London and Paris this year and expects an inflection in its European business this year.
Beyond the European venture, which significantly expands its addressable market, the company is planning to add several galleries in North America and has ambitions of expanding its luxury business into new products, like hotels, restaurants, and jet and yacht charters, which has already begun. CEO Gary Friedman also has plans for RH to sell fully furnished homes, essentially getting into the housing industry directly.
RH has managed to drive its recent recovery even as headwinds in the housing market persist. That will eventually change as interest rates should moderate and the supply/demand imbalance should be corrected. At a market cap of $8 billion, the stock looks like a good bet to 5x over the next decade, turning $1,000 into $5,000.
The future of restaurants is Toast
Jennifer Saibil (Toast): The future of almost any industry lies in artificial intelligence and cloud computing. Some of the biggest winners here are going to be companies that are building the foundations of these services, like Amazon and Microsoft, but don't ignore the smaller, niche players that are just getting started and have massive opportunities. Toast is a great example of a growing disruptor that offers a better platform than the traditional operational model for the restaurant and food industries.
The restaurant industry is complex, with many moving parts. Toast's platform features end-to-end cloud management services including software and hardware to simplify the process and speed up service. It connects all of a client's operations in one place. For example, service staff can use point-of-sale devices to take orders, which go directly to kitchen devices. Food items that are used come directly out of inventory and are calculated for suppliers.
Because it's geared only to the restaurant industry, unlike similar concepts that target a broader section of businesses, Toast says it has better features for its specific clientele. And because it's cloud-based and relies on technology, it's easy to scale, and it's finally doing that profitably.
In the 2024 third quarter, annualized recurring run rate, which the company uses as its top-line metric, increased 28% year over year, and it reported $56 million in net income, up from a $31 million loss last year. Toast added 7,000 new locations and ended the third quarter with almost 127,000 in total, a 28% increase year over year.
The company has an enormous opportunity to grab market share in a growing industry. It has 13% of the addressable market in U.S. restaurants, which it estimates as 875,000 locations. It's rolling out internationally, where there are another 280,000 locations in its addressable market, and it currently has 2,000. And it recently launched a new product targeting grocery stores.
Toast stock is up about 125% over the past year, but if it continues to report double-digit growth and increasing net income, it should be able to turn a $1,000 investment into $5,000 or more over the next 10 years.
Should you invest $1,000 in Coupang right now?
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jennifer Saibil has no position in any of the stocks mentioned. Jeremy Bowman has positions in Amazon and RH. John Ballard has positions in Coupang and Toast. The Motley Fool has positions in and recommends Amazon, Microsoft, and Toast. The Motley Fool recommends Coupang and RH and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
