The late Charlie Munger said saving the first $100,000 was always the hardest. But crossing that milestone can make it much easier to build millionaire-making gains with bolder long-term investments.
Assuming its valuations hold steady, a company would need to grow its revenue or earnings at a compound annual growth rate (CAGR) of at least 26% over the next decade to turn a $100,000 investment into $1 million. That might seem like a high bar to clear, but MercadoLibre (NASDAQ: MELI), Duolingo (NASDAQ: DUOL), and Zscaler (NASDAQ: ZS) could make the cut. Let’s find out a bit more about these three stocks.
1. MercadoLibre
MercadoLibre is Latin America’s largest e-commerce company. It operates across 18 countries but generates most of its sales in Brazil, Argentina, and Mexico. It also owns Mercado Pago — a digital payments platform integrated into its online marketplace and third-party businesses — and other fintech services. It was founded more than two decades ago, and its early mover advantage gives it an edge against its regional and domestic challengers.
MercadoLibre’s revenue grew at a CAGR of 54% in U.S. dollar terms from 2020 to 2023, even as its top markets faced tough macro and inflationary headwinds. It also turned profitable on a generally accepted accounting principles (GAAP) basis in 2021 and grew its earnings per share (EPS) at a CAGR of 127% from 2021 to 2023. From 2023 to 2026, analysts expect its revenue to rise at a CAGR of 24% as its EPS grows at a CAGR of 48%.
MercadoLibre’s management expects that robust growth to be driven by new customers, the expansion of its fintech ecosystem, and the dilution of the company’s payment processing and logistics costs. Its stock looks reasonably valued at 47 times forward earnings and 4 times this year’s sales, and it could soar even higher over the next decade as the Latin American e-commerce market expands.
2. Duolingo
Duolingo became the world’s most downloaded language learning app by gamifying the experience with gems and other rewards. It monetizes its free users with ads, while its paid subscribers get an ad-free experience with extra perks. Duolingo also provides other phonics, math, and music apps and a stand-alone English proficiency test.
Duolingo went public three years ago, and its revenue grew at a CAGR of 49% from 2021 to 2023. It also turned profitable on a GAAP basis in 2023. Between the fourth quarters of 2020 and 2023, its monthly active users (MAUs) more than doubled, its daily active users (DAUs) more than tripled, and its number of paid subscribers more than quadrupled. In 2023, it generated 80% of its bookings from subscriptions, which are more resistant to economic downturns than its ads.
From 2023 to 2026, analysts expect Duolingo’s revenue to grow at a CAGR of 30% as its GAAP EPS increases at a CAGR of 131%. Its stock isn’t cheap at 116 times forward earnings, but it also doesn’t seem terribly expensive at 12 times this year’s sales. If Duolingo continues to dominate the language learning market as it expands its ecosystem, it could generate impressive multibagger gains over the next 10 years.
3. Zscaler
Zscaler provides zero-trust services that treat everyone, including a company’s CEO, as a potential threat. But unlike many other cybersecurity companies that install on-site appliances, Zscaler only provides its tools as cloud-based services — which are cheaper, stickier, and easier to scale as an organization expands.
Zscaler’s revenue grew at a CAGR of 55% from fiscal 2020 to fiscal 2023 (which ended last July). That growth was driven by the market’s robust demand for its zero-trust services, even as the macro headwinds made it tougher to lock in new customers. From fiscal 2023 to fiscal 2026, analysts expect its revenue to grow at a CAGR of 26%. That’s still a solid growth rate for a stock that trades at 11 times next year’s sales.
Zscaler isn’t profitable on a GAAP basis yet, and its stock declined by about 10% this year amid concerns regarding its slowing sales growth and rising research & development and marketing expenses. However, analysts expect it to turn profitable by fiscal 2026.
According to Fortune Business Insights, the zero-trust market could grow at a CAGR of 17% from 2023 to 2030. If Zscaler’s cloud-native approach helps it grow at a faster clip than the broader market, its stock could have plenty of upside potential.
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*Stock Advisor returns as of July 2, 2024
Leo Sun has positions in MercadoLibre. The Motley Fool has positions in and recommends Duolingo, MercadoLibre, and Zscaler. The Motley Fool has a disclosure policy.
Want $1 Million in Retirement? Invest $100,000 in These 3 Stocks and Wait a Decade was originally published by The Motley Fool
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