Having a stock that you own double in price across a year-long period is certainly cause for celebration, but it also presents a good opportunity to take another look at the underlying company and determine whether you still like the investment at its new, elevated price.
To find out whether some of 2017's top-performing stocks are still worth buying, we asked three Motley Fool investors to shine the spotlight on one of last year's big winners and determine if its outlook is still bright. Read on to find out whether they think Align Technology (NASDAQ: ALGN), Proto Labs (NYSE: PRLB), and Baozun (NASDAQ: BZUN) have what it takes to keep their winning streaks alive.
An ascendant Chinese e-commerce company
Keith Noonan (Baozun): Chinese e-commerce company Baozun saw its stock price rise roughly 162% in 2017. That's quite the performance, but I think it still has a promising runway for growth. I recently bought shares and expect that the company will continue to perform at a high level and deliver wins for investors on the strength of its competitive advantages and industry tailwinds.
China has the world's largest e-commerce market, and the growth of online retail is expected to continue at a robust clip. Last year, the value of the country's online retail market grew roughly 30% to reach $1.1 trillion, and a Goldman Sachs report projects that the market will grow to $1.7 trillion in 2020. That's the kind of momentum that brands from all over the world are eager to tap into, but they face some crucial obstacles. That's where Baozun comes in.
The company provides an easy way for international brands to enter the Chinese market and take advantage of the country's rapid growth. Due to government regulations, many companies are unable to simply sell their products directly to consumers in China, but opting to sell their wares through Baozun's platform is a relatively easy workaround. The company counts Nike, Tapestry, and Microsoft among its brand partners, and managed to grow its list of partners from 133 to 152 in its last fiscal year.
Baozun is also in the process of moving its business toward simply connecting its retail partners with customers rather than storing and shipping items itself. That's a move that should ultimately allow it to deliver substantially better margins while still growing sales at a healthy clip. Baozun's partnerships with leading e-commerce platforms JD.com and Alibaba also do a lot to reduce the risk that its business will be disrupted by competitors.
With shares trading at roughly 40 times forward earnings, Baozun is priced for growth, but I think the company is in position to deliver and recommend it as a way to benefit from momentum in Chinese e-commerce.
This stock will put a smile on your face
Dan Caplinger (Align Technology): Parents with preteens or teenagers know all too well how common it is for kids to have orthodontic problems. Historically, that's meant fighting through the pain and social stigma of metal braces, with their ugly design and often long treatment periods. For many adults, traditional braces are simply unacceptable, and that's part of what initially inspired Align Technology to come out with its Invisalign orthodontic appliances. With its clear, transparent design, Invisalign is far less obtrusive than braces, and Align's early customers were more than willing to pay the extra cost in order to get that benefit.
As the industry has evolved, younger patients have discovered the value that Invisalign brings, and Align has gone beyond serving adults to focus more on the much larger teen market. That's yielded dramatic growth, with 40% gains in sales last quarter that pushed earnings higher by nearly the same amount.
Some fear that competition could eventually bring Align's growth trajectory to an abrupt halt. But so far, that hasn't happened, and international opportunities could keep the business expanding for a long time to come. Given how popular the products are among orthodontic professionals and the patients who use them, it's likely that Align Technology stock will keep its investors smiling for a long time to come.
3D printing's biggest returns for investors
Travis Hoium (Proto Labs): Proto Labs may not be the first company you think of when 3D printing comes to mind, but maybe it should be. The company is a leading supplier of rapid prototyping services for businesses and consumers, including 3D printing and much more. It's not a printer manufacturer like 3D Systems or Stratasys, but rather uses 3D printers, injection molding machines, CNC machines, and other technology to make parts for designers who value the speed and flexibility to prototype parts using multiple methods.
Proto Labs' innovation was in building a platform for customers to upload digital designs and quickly have them turned into physical parts. In as little as a day, parts can be uploaded, built, and delivered to customers, saving designers the hassle of buying and maintaining equipment like a 3D printer. This innovation has made its financial results turn out far better than those of the 3D printer manufacturers.
In the past year, Proto Labs has generated $57.6 million in net income versus losses of $39.2 million and $77.2 million for Stratasys and 3D Systems, respectively. Both 3D printer manufacturers see Proto Labs' success and are trying to build their own on-demand manufacturing platforms, but have had little success so far. And given their existing cost structure trying to develop and sell 3D printers, it's hard to see how they'll be able to succeed with both on-demand services and printer manufacturing.
With a technology-agnostic business model serving the growing needs of customers who value flexibility in prototype production methods, Proto Labs is well-positioned in the market. The question is whether the stock is a buy at over 60 times trailing earnings. I think first-quarter earnings answered that, with revenue increasing 34.4% to $107.7 million and record net income of $18.1 million. Proto Labs is showing the growth in revenue and industry-leading profitability that proves the value of its business model. With a platform that will be able to expand with the needs of the market, this is a growth stock that I think still has a lot of room to run higher.
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Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. Dan Caplinger has no position in any of the stocks mentioned. Keith Noonan owns shares of Baozun. Travis Hoium has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Align Technology, JD.com, Nike, Proto Labs, and Tapestry. The Motley Fool recommends DDD and SSYS. The Motley Fool has a disclosure policy.