In retrospect, it's easy to look back and see why the market's best-performing stocks came to be. But it's much more difficult to figure out whether those stocks will be able to extend their recent gains.
So with that in mind, we asked three top Motley Fool investors to each find a stock that doubled last year -- and to determine whether they think those stocks are still worth buying. Read on to learn what they had to say about Align Technologies (NASDAQ: ALGN), Shopify (NYSE: SHOP), and Take-Two Interactive (NASDAQ: TTWO).
Straighten your financial future with this stock
Steve Symington (Align Technologies): Best known as the maker of Invisalign, Align Technologies was the best-performing stock in the S&P 500 last year with a whopping 131% gain -- the product of soaring revenue and profits as its flagship medical device is increasingly being used in more complex orthodontic cases. And with shares up another 50% so far in 2018 and sitting near all-time highs as of this writing, some people might be understandably hesitant to step in today.
But prospective investors should also keep in mind that Invisalign is still only applicable to roughly six million of the total 10 million orthodontic case starts every year, and the company should be able to significantly bolster its potential application through its ambitious research and development efforts. What's more, Invisalign still commands only a 12% share of those six million current cases, leaving a long runway for growth as more consumers are made aware of its benefits relative to traditional orthodontic solutions -- namely, that it's virtually clear, removable, more comfortable, and works significantly faster than braces.
And that's not to mention the incremental growth provided by Align Technology's separate iTero intra-oral scanner business. iTero represented roughly 12% of total revenue last quarter, but management believes the product can growth to between 20% and 30% of total sales.
For investors willing to buy Align Technologies stock now and watch these trends play out, I think it's as straightforward a decision as our market can possibly offer.
This company's set to grow sales 50% this year
Neha Chamaria (Shopify): After ending 2017 with a staggering 135.6% gains, Shopify continues to prove short-sellers wrong: The stock's up another solid 45% so far this year. While it's an e-commerce business, Shopify isn't a typical marketplace that only connects sellers with buyers. The company allows small- and medium-sized businesses, mostly entrepreneurs, to set up and operate customizable online stores on Shopify's platform that covers all aspects of the business, including payments and logistics. Retailers can even integrate the platform with their offline stores.
The idea of taking your products online without the hassles of dealing with the technicalities of a website has found many takers: More than 600,000 merchants from 175 countries have signed up on Shopify, with the bulk of the growth coming in just the past couple of years.
In 2017, Shopify's gross merchandise volume (GMV), or the total dollar value of the orders processed, surged 71% to hit $26.3 billion. The company's revenue soared 73% to $673.3 million, which explains the stock's rally. Shopify has started off 2018 on an equally strong note, generating 64% higher GMV and 68% higher year-over-year revenue in the first quarter.
To be clear, Shopify is yet to turn a profit as management is busy building up a merchant base and setting up a technologically advanced platform to push sales right now. That's how young businesses evolve, and with partner-companies like Amazon.com and Facebook and large enterprises like Ford already on its book, Shopify must be doing something right. With management targeting $1 billion in revenue this year, Shopify remains a long-term buy.
Leading the wave of hot video game stocks
Travis Hoium (Take-Two Interactive): The video game industry was hot in 2017 and Take-Two Interactive was one of the biggest beneficiaries. But it wasn't a huge growth year that drove the market's excitement. Coming into the year investors had very low expectations for the company, predicting a sharp drop in revenue, but instead, the company grew slightly and returned to profitability, which really pushed the bulls into the stock.
Another exciting development for the video game industry in 2017 was a realization of the potential of esports. According to the 2017 Global Esports Market Report from Newzoo, esports will grow from $493 million in total revenue during 2016 to $1.49 billion in 2020. The game makers that can capitalize will have a growth market on their hands that leverages existing game content. Take-Two Interactive has very little content that monetizes the esports model, so it's left out of the big esports money, for now.
The reason I don't think Take-Two Interactive is still a buy after last year's rise is that it's not actually growing and it doesn't have a lot of potential in esports. On top of that, the stock trades for a whopping 72 times trailing earnings. Unless the company shows the ability to build a new hit game that moves past the legacy Grand Theft Auto and 2K Sports games, this stock doesn't look nearly as well positioned as some of its video game rivals.
The bottom line
These three stocks have already delivered stellar gains for patient investors. But that certainly doesn't guarantee continued outperformance. While we think Align Technologies and Shopify should be able to keep climbing, there may be reason for Take-Two investors to be cautious.
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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. Neha Chamaria has no position in any of the stocks mentioned. Steve Symington has no position in any of the stocks mentioned. Travis Hoium owns shares of Ford. The Motley Fool owns shares of and recommends Align Technology, Amazon, Facebook, Shopify, and Take-Two Interactive. The Motley Fool recommends Ford. The Motley Fool has a disclosure policy.