Younger investors saving for retirement have one significant advantage — the ability to take on more risk. Because they have a longer investment time horizon, they can afford to take chances on great stocks offering a high potential for long-term returns than older investors who are looking to buy stocks that are safer but invariably offer lower potential returns.
Fortunately, many promising tech stocks hold the potential to increase their value by tenfold over time. Investors hoping to turn $100,000 into $1 million over the next 10 years could see such potential returns in Block ( SQ -6.04% ), DigitalOcean ( DOCN -3.07% ), and Roku ( ROKU -4.28% ).
Block has placed itself at the center of fintech in many developed countries. Its business-oriented Square ecosystem and its Cash App continue to grow by expanding into new markets and broadening its scope of business within existing countries.
Block just entered its eighth country early this year by bringing its ecosystem into Spain. Now, due to its presence in three EU countries, the company once known as Square has an easier path to serving the rest of the Eurozone.
Moreover, it added cryptocurrency capabilities with its Bitcoin trading platform in both Square and Cash App. This likely helped it almost catch up to PayPal Holdings‘ Venmo in terms of popularity. Also, according to Research and Markets, the addressable market for fintech is expected to reach $31.5 trillion by 2026, a 27% compound annual growth rate (CAGR) that should bring opportunities for lots of companies in this sector, including Square.
Block increased its 2021 revenue by 86% compared with 2020, 57% if excluding Bitcoin. This led to adjusted earnings of $898 million in the same period, 111% higher than year-ago levels. Analysts only expect 7% revenue growth in 2022 before it rebounds to 22% the next year.
Still, the stock has lost more than half of its value since its peak last summer. With a price-to-sales (P/S) ratio of about 4, it has fallen from the double-digit sales multiples of early last year. This makes it more reasonably priced as Block seeks to meet the financial needs of more businesses and individuals.
At first glance, companies such as Amazon and Microsoft dominate the cloud industry and cater their services to lots of big names. However, their product offerings are not really catered to the specific needs of small- and medium-sized enterprises (SMEs). DigitalOcean has built a high-growth enterprise by filling that gap. But while it offers simple, affordable pricing plans tailored to the needs of SMEs, its most vital advantage seems to lie in its community. Members of this community give and receive advice, helping these businesses resolve IT challenges that might otherwise hamper smaller enterprises.
Also, DigitalOcean already claims about 600,000 customers in 185 countries. and the cloud market should also leave plenty of room for company growth. Grand View Research estimates the cloud infrastructure market will grow to $1.55 trillion by 2030, up from $484 billion today.
DigitalOcean’s 2021 revenue of $429 million makes up only a tiny fraction of that addressable market, though that was a 35% increase compared with 2020. Moreover, it cut its yearly loss to about $20 million, down from $44 million in 2020. Furthermore, revenue estimates for between $564 million and $568 million amount to 32% growth if the estimate holds, pointing to little if any slowdowns.
Additionally, the stock has dropped 55% from its November high, taking its P/S ratio down to around 13. While this is higher than its larger competitors, a lower stock price and rapid revenue growth rate should take this stock much higher as the need for the cloud within SMEs continues to expand.
Roku has managed to capitalize on the transition of televised media to streaming. Through its aggregation of services and the offering of its Roku platform and channel, it provides an avenue by which companies can fund programming through advertising.
Furthermore, Roku continues its expansion into Europe and Latin America, giving it leverage as companies like Alphabet attempt to compete. Additionally, the company has integrated its operating system into new televisions and offered its equipment at a low cost, easing the adoption of its platform.
Roku claimed about 60 million users as of the end of 2021. Also, Research and Markets forecasts that the global digital advertising market will grow to $764 billion by 2025 and to $1.45 trillion by 2030 for a CAGR of 13.7%. Roku appears well-positioned to capture much of this increase as it currently only operates in roughly 20 countries and has plans for further expansion.
So far, Roku has barely begun to scratch the surface of its potential. In 2021, it generated almost $2.8 billion in revenue, 55% more than in 2020. The revenue growth helped the company earn $242 million in net income, an improvement from the $18 million loss in 2020.
Admittedly, the first-quarter outlook for 25% year-over-year revenue growth represents a slowdown. Still, the stock has fallen by about 75% from its high last July. Also, the P/S ratio now stands at six, down from 33 last February. These factors should more than price in the revenue growth slowdown into the stock, making Roku stock a buy now.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.