We're going to look at three top stocks that have tripled or more in the last three years and still look attractive today: graphics processing unit specialist NVIDIA (NASDAQ: NVDA), Invisalign dental retainer maker Align Technology (NASDAQ: ALGN), and e-commerce titan-plus Amazon.com (NASDAQ: AMZN).
You can find some great long-term winners by going fishing in a pool of stocks that have considerably outperformed the market in recent years. Such outperformance is often a sign that a company has a considerable competitive advantage that its management is successful at exploiting -- and, in some cases, these advantages can prove very sustainable.
NVIDIA: Nearly a 10-bagger over 3 years
NVIDIA stock has been on a tear since mid-2015, with its 2017 return of 82% propelling its three-year return to a staggering 868%, through Dec. 29. (The S&P 500 has returned 36.4% over this period.) Its torrid run is being driven by the graphics processing unit (GPU) specialist's strong financial results, and investor optimism about the company's future.
NVIDIA has transformed itself from a company that primarily supplied graphics cards for computer gaming to a company that's also a player in many of today's hottest tech trends, including artificial intelligence (AI), driverless vehicles, virtual reality (VR), and even cryptocurrency. Thanks to the rapid adoption of its GPU-based approach to deep learning -- a category of AI that trains machines to think like humans do -- its AI-driven data-center business is its most powerful growth engine.
In Q3, NVIDIA's revenue jumped 32% and adjusted earnings per share (EPS) surged 42% from the year-ago period. Wall Street expects NVIDIA's growth to slow considerably beginning in fiscal 2019, from the 60+% EPS growth it's on track to post this fiscal year to an average of 15.5% over the next five years. While investors should expect growth to moderate, there's good reason to believe that NVIDIA will handily surpass this consensus estimate: It regularly breezes by Wall Street's expectations.
Align Technology: A 292% gain over 3 years
Shares of Align Technology, best known for its clear plastic Invisalign dental retainer, returned a whopping 131.1% in 2017. The stock was the second best performer on the S&P 500 index for the year, behind NRG Energy, which returned 133.7%. The financial stars have been aligned for some time for the company's shareholders, whose investments have nearly quadrupled over the last three years.
Despite Align's amazing stock performance, this $17.8 billion market cap stock still seems to fly under many investors' radars. That's probably in part because it might not seem as "sexy" as high-tech stocks. However, for investors who find much appeal in the combination of a great business model, a leading brand name, robust financial results, and much growth potential, you might have found an ideal stock match.
The bulk of Align's revenue -- nearly 89% in the third quarter -- comes from selling clear plastic dental aligners. Compared with traditional metal braces, which still dominate the market, these aligners offer several advantages, including the obvious one that they look better. The remaining revenue is generated from sales of its iTero intra-oral scanners and services.
In Q3, revenue jumped 38% to $385.3 million and adjusted EPS soared 60% year over year. Wall Street expects 2017 earnings to grow 52.3% year over year, and projects earnings will average 29% growth over the next five years. Like NVIDIA, Align Technology regularly cruises by earnings expectations, so this long-term growth projection could prove too conservative.
Amazon: A 278% gain over 3 years
Amazon proves even a mammoth -- or Amazonian, as the case may be -- company can keep growing at a solid clip, powering its stock higher. Shares rose 56% in 2017, bringing the three-year gain to 278%. Amazon's $536 billion market cap makes it the fourth largest S&P 500 company, though it still has growth potential in its existing business -- such as via international expansion -- and plenty of industries it has yet to enter and conquer.
Amazon's Q3 results provide a snapshot of its business, though keep in mind its core e-commerce business is quite seasonal: Revenue jumped 34% year over year, which included organic growth of about 30%, to $41.3 billion. Of this total, 60% was generated from worldwide retail sales, 18% from fees from third-party sellers, nearly 11% from its Amazon Web Services (AWS) cloud-computing services business, nearly 6% from subscriber fees (Prime and other subscription services), nearly 3% from Whole Foods, which it acquired for $13.7 billion last August, and about 2% miscellaneous.
AWS is Amazon's earnings and cash-flow engine. In the third quarter, it generated operating income of $1.2 billion, whereas the company's retail businesses turned in an operating loss of $824 million. Amazon's formula for building an even bigger empire is to generate as much cash flow as possible from AWS, and use the cash to expand. Current market chatter is that Amazon is eyeing entering the pharmaceutical services space.
Trying to predict long-term earnings growth for Amazon seems a fool's errand, so it's not worth including Wall Street estimates. Besides, Amazon's main goal isn't to grow earnings, but to grow cash flow. While Amazon seems on track to rule the world, by every measure, its stock's valuation is sky-high, making it a stock you should only consider buying if you have a long-term focus and much trust in founder-CEO Jeff Bezos.
Find out why Amazon is one of the 10 best stocks to buy now
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Beth McKenna has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Align Technology, Amazon, and Nvidia. The Motley Fool has a disclosure policy.