3 Stocks With Shopify-Like Return Potential

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Shares of Shopify (NYSE: SHOP) have tripled in the last 52 weeks as the provider of e-commerce solutions moved from success to success. But that's looking in the rearview mirror -- where can investors find similar returns over the next couple of years?

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We asked a panel of our finest tech contributors the same question, and they were quick to come up with some strong ideas. Read on to see why they picked NIC (NASDAQ: EGOV)Skyworks Solutions (NASDAQ: SWKS), and Zendesk (NYSE: ZEN).

Quietly enabling the Internet of Things

Steve Symington (Skyworks Solutions): Wireless analog semiconductor specialist Skyworks has already enjoyed a stellar run lately, with shares up more than 60% over the past year on the heels of its strong fiscal second-quarter results in late April. Quarterly revenue rose 9.9% year over year last quarter to $851.7 million, while adjusted earnings per share climbed 16% to $1.45.

Of course, those results don't seem particularly impressive at first glance -- that is, until you realize last quarter marked Skyworks' return to top-line growth after three straight quarters of year-over-year declines. For that, the company partly credited a bevy of new product launches featuring its solutions, including several components in both Samsung's Galaxy S8 platform and Huawei's P10 and P10+ devices, Cisco's enterprise-grade MIMO gateways, the Nintendo Switch, and LTE module design wins at three major automotive manufacturers.

What's more, Skyworks expects growth to accelerate going forward -- current-quarter guidance calls for 18% and 23% top- and bottom-line increases, respectively -- as it remains perfectly positioned to take advantage of the increasing macro trends for more ubiquitous wireless connectivity in mobile and Internet of Things devices.

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For investors willing to buy now as those trends continue to play out, I think Skyworks is a winner that will keep on winning.

E-government tools can be exciting, too

Anders Bylund (NIC): At first glance, NIC might not seem like a match for Shopify's huge market returns. The provider of digital tools for government operations has seen share prices slide 5% in 52 weeks, including a 17% plunge so far in 2017. Hardly the stuff of hypergrowth legend, right?

Maybe it's just a matter of time.

Among NIC's three founding principles, the company hopes "To be the best investment stockholders have ever made." That's a lofty goal, but not an unreachable one.

Share prices have tripled over the last decade while the S&P 500 benchmark only rose 60% higher, so there is certainly some long-term value being built here. Along the way, federal election years have been a mixed bag but the next year in each election cycle has tended to be pretty great for NIC. Share prices nearly doubled in 2009 and gained more than 45% in 2013 as both local and federal government entities shifted their focus from getting elected to running the nation.

It's unclear whether 2017 will provide a similar post-election boost, and management's guidance has landed on the timid side in 2017. The company was formerly known as the National Information Consortium recently lost a large contract in Tennessee and is knee-deep in launching a new Gov2Go platform, and it could take a while to deliver gains from that position.

But NIC's share prices look overly conservative at just 23 times trailing earnings and 25 times free cash flows. Earnings are projected to rise at an average annual clip of 25% over the next five years as governments around the world strive to modernize their operations.

In that light, NIC's lagging shares look like a buying opportunity. The recovery from these bargain-basement prices could easily match Shopify over the next few years.

A fast-growing software company

Tim Green (Zendesk): Zendesk, a software-as-a-service provider that offers customer service solutions for businesses, is growing fast. The company surpassed 100,000 paid customer accounts during the first quarter, and revenue expanded by 36% year over year. Zendesk is also having some success winning larger accounts, with a 35% surge in contracts with an annual value of $50,000 or greater during the first quarter.

Zendesk is aiming to produce $1 billion of revenue by 2020, and it expects to produce positive free cash flow this year, a critical milestone. The company isn't profitable, and both GAAP and non-GAAP profitability may still be years away. But that's par for the course for most fast-growing SaaS companies.

Zendesk isn't growing as fast as Shopify, and it's producing much larger losses. But revenue has the potential to triple over the next four years if Zendesk hits its long-term target, and increased scale should eventually start pushing the bottom line in the right direction. Like all money-losing companies, Zendesk is a risky investment. But the growth potential may justify that risk for growth-focused investors.

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Anders Bylund has no position in any stocks mentioned. Steve Symington has no position in any stocks mentioned. Timothy Green owns shares of CSCO. The Motley Fool owns shares of and recommends Shopify and Skyworks Solutions. The Motley Fool has the following options: short November 2017 $95 calls on Skyworks Solutions and short November 2017 $92 puts on Skyworks Solutions. The Motley Fool recommends CSCO, NIC, and Zendesk. The Motley Fool has a disclosure policy.