3 High-Growth Stocks That Could Soar

Markets Motley Fool

It can be nerve-wracking to invest in high-growth stocks. After all, if there are any signs that their growth is slowing, the market tends to punish such stocks with stunning ferocity, often erasing any gains in short order.

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At the same time, it goes without saying that investing in high-growth stocks can be exceedingly rewarding. But where can you find the best high-growth stocks our market has to offer?

We asked three top Motley Fool investors that question. Read on to learn why they think Silicon Labs (NASDAQ: SLAB), NIC Inc. (NASDAQ: EGOV), and Alarm.com (NASDAQ: ALRM) fit the bill.

High growth in disguise... for now

Steve Symington (Silicon Labs): Silicon Laboratories' growth doesn't look all that impressive at first glance. After all, the fabless semiconductor specialist's revenue last quarter climbed a modest 8.7% year over year to just over $190 million. But if you look closer, one key segment should be the key to accelerated gains in the coming years.

More specifically, note Silicon Labs' Internet of Things (IoT) revenue skyrocketed 27% year over year last quarter to $98 million, and comprised more than half of total sales for the first time in company history. To be fair, Silicon Labs' Infrastructure segment revenue also climbed 7% to $38 million. But holding back its overall growth were declines of 4% in broadcast revenue to $37 million, and a 10% drop in access business revenue to $17 million.

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It should come as no surprise, then, that Silicon Labs has gone to great lengths in recent years to foster its faster-growing IoT segment through both organic investments and strategic acquisitions.

"Our strategy is coming together as we focus on core strategic growth drivers and capture share in target markets," elaborated Silicon Labs' CEO Tyson Tuttle. 

Over the long term as Silicon Labs' Internet of Things solutions continue to gain ground, the pace of IoT growth relative to its other segments will only become more pronounced. For investors who buy before that happens -- and even with shares up a healthy 18% year to date as of this writing -- I think Silicon Labs is a compelling high-growth stock that could extend its winning streak in the coming years.

All this government-backed growth, and a 2% dividend too

Anders Bylund (NIC Inc.): This is just about the best billion-dollar software company you've never heard of.

NIC specializes in digital government services, based on the company's service templates but hand-tailored to each contract's specifications. Next time you drop by your state's web portals to renew your driver's license, pay small business taxes, or apply for a professional license, chances are high that NIC is doing much of the digital work behind the scenes.

The future is online, even when it comes to government operations, so NIC serves a healthy and expanding market segment. The company faces plenty of competition on the nitty-gritty agency level, but stands alone in offering a one-stop shop for all of your governmental data management needs.

So the business model is pointed straight at an attractive long-term growth opportunity, and is already delivering big results. NIC's annual sales have increased by 36% over the last four years while free cash flows soared 164% higher.

The stock is selling at a discount right now, having fallen nearly 33% year to date. A quick discounted cash flow checkup shows that the stock should be worth more than $20 per share today, but shares are trading at just $16.05 as of this writing. That includes a 9% drop in a single day late last month, as analysts worried about NIC potentially losing a lucrative contract with the state of Texas.

This is not NIC's first rodeo. The company is likely to renew its Texas deal before it expires in August of 2018, and even a lost agreement wouldn't be the end of the world.

The NIC stock is set up for a strong short-term bounce and impressive long-term gains. There's even a good-looking 2% dividend yield to pocket while you wait for the big multi-year returns.

What's not to love?

Betting on the connected home

Tim Green (Alarm.com): One trend that's unlikely to abate is the connected home. Some connected devices, like Amazon's Echo smart speaker, are nearing mainstream status, which should help drive demand for all manner of smart devices, from security systems to connected light bulbs.

Alarm.com provides a cloud-based platform to manage all of this complexity. The company's main focus is security -- it partners with thousands of service providers across the country to handle installation and ongoing support instead of selling its services directly. Its platform works with a wide variety of devices, including security cameras, smart light bulbs and outlets, thermostats, garage door systems, smart locks, sprinkler systems, and security panels.

The company is growing quickly, with revenue jumping by 25% last year. Alarm.com is also profitable, producing an operating margin of 5.4% in 2016. Margins have the potential to soar as Alarm.com grows larger, especially since it doesn't have the burden of a massive sales operation selling directly to customers.

Alarm.com stock is not cheap, trading for roughly 6.3 times sales and well over 100 times earnings. But if the company can keep growing sales at a brisk pace and eventually begin expanding its margins, becoming the standard for home security and the connected home along the way, the stock could be worth far more down the road.

10 stocks we like better than Silicon Laboratories
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Anders Bylund owns shares of Amazon. Steve Symington has no position in any stocks mentioned. Timothy Green has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool recommends Alarm.com Holdings, NIC, and Silicon Laboratories. The Motley Fool has a disclosure policy.