Buying the right growth stocks can do big things for your portfolio. Shares of Shopify (NYSE: SHOP), MercadoLibre (NASDAQ: MELI), and NVIDIA (NASDAQ: NVDA) have been big winners this year, soaring 132%, 69%, and 97%, respectively, so far in 2017.
The three tech-savvy companies have become market darlings, and it's not just their stock prices on the move. Revenue rose at least 30% in each speedster's latest quarter. Whether they're helping small businesses gain an online retailing presence, hooking up merchants and customers through Latin America, or playing an important tech role in some of the hottest trends, Shopify, MercadoLibre, and NVIDIA are in the right place at the right time. They've been great for investors so far, but let's see which of the three reigns supreme for big gains in 2018 and beyond.
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Running of the bulls
Shopify provides an e-commerce platform for small and mid-size merchants, with vendors paying as little as $9 a month and a sliver of subsequent transactions to be on Shopify. It's the biggest gainer in 2017, and it's also the one growing the fastest. Revenue soared 72% in its latest quarter. Shopify may not be a household name, but it's been a godsend to smallish sellers looking for a seamless way to reach a global audience. A whopping $6.4 billion in gross merchandise volume was transacted through Shopify in the third quarter, 69% more than the same period a year earlier.
MercadoLibre runs the leading online marketplace through Latin America. Revenue shot 61% higher in its latest quarter, its third consecutive period of top-line growth of 59% or better. Between a 56% surge in items sold through its marketplace and an even heartier 70% spike in transactions settled through its MercadoPago payment platform, things are running pretty smoothly for MercadoLibre.
NVDIA isn't growing as quickly as Shopify and MercadoLibre these days. Revenue for the graphics chip specialist rose 30% in its latest quarter, and the midpoint of its guidance for the current quarter suggests continuing deceleration at 22% year-over-year growth. Things have been more exciting lately at the other end of the income statement where NVIDIA has blown past analyst profit targets by at least 19% in each of the past five quarters.
The three stocks have been on fire this year, but this doesn't mean that they're all on top of the world now. Shares of Shopify and MercadoLibre have staged double-digit percentage corrections since peaking this summer. Shopify took a hit after noted worrywart Citron Research scorched its model and business practices, something that Shopify is refuting in its latest earnings call. The shares are still trading 20% off their summertime highs.
MercadoLibre came under fire on reports that Jeff Bezos was eyeing a bigger push into Latin America. When the world's largest e-tailer wants in on your turf, it can be problematic. MercadoLibre stock is trading 11% below its recent all-time highs.
The final weigh-in
Momentum is on NVIDIA's side relative to the other two names given how close it is to hitting fresh all-time highs, and it also happens to be the cheaper of the three stocks on a forward earnings basis. NVIDIA is currently fetching 46 times next year's earnings estimates, compared to multiples of 81 for MercadoLibre and more than 400 for Shopify. Value investors will be quick to point out that a P/E of nearly 50 for NVIDIA is not cheap, but on the other side of the coin, one can also argue that MercadoLibre and Shopify are earlier in their growth cycles where profitability is not a factor driving the stocks higher.
Income investors are probably already looking elsewhere, but it's worth noting that MercadoLibre and NVIDIA both shell out regular dividends. We're not talking about a lot of money here -- as the yields are less than 0.3% for the stocks -- but it's a consideration for some investors.
Sizing up the three companies may find NVIDIA to be the growth laggard, but it's the one I'm tagging as the best buy of the three stars of 2017. It may be growing slower, but the far more compelling valuation and strong track record of trouncing Wall Street estimates give it the edge. It also doesn't hurt that it's more diversified in its offerings. The market for graphics chips may seem to be a cyclical, if not commoditized, niche, but NVIDIA's found a way to gain relevance in everything from self-driving cars to virtual reality. Unlike Shopify that can get tripped up when its model's legality comes into question or MercadoLibre in a region where socioeconomic factors trigger volatility, NVIDIA has its fingers in a lot of different trending markets.
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