Finding great companies while they are still small is a smart strategy to identify stocks that can potentially make you a millionaire investor. It’s all about putting money to work in growing companies that still have a large expansion opportunity. But it can take time for even the best growth stocks to grow your savings. If you had bought $10,000 of Walmart stock in 1980, it would have turned into $1 million after 18 years.
With that in mind, let’s look at three promising companies that a team of Motley Fool contributors believe have the potential to grow significantly in value over the long term.
The next great restaurant growth story
John Ballard (Cava Group): Every decade, it seems like at least one new restaurant chain emerges in the stock market and goes on to deliver massive returns for early investors. A $10,000 investment in Chipotle Mexican Grill (NYSE: CMG) at its initial public offering in the early 2000s would already be worth $611,000. Cava Group (NYSE: CAVA) could be next in line.
Cava is focused on the Mediterranean fast-casual market, where there’s a lot of opportunity for a dominant national chain to fill a void in the industry and do very well. Cava only had 309 restaurants at the end of 2023, but management is aiming for 1,000 restaurants. That might prove conservative given the footprint of more established chains like Chipotle, but the initial target should provide enough runway for growth to deliver excellent returns to start.
A couple of strong quarters of growth have already sent the stock up 33% from its initial public offering price last year. Revenue grew 52% year over year in the fourth quarter. This growth was driven by a 30% increase in the number of restaurants opened compared to the year-ago quarter, in addition to a solid 11% increase in same-store sales.
It was also encouraging to see Cava turn the year-ago net loss of $18.8 million into a profit of $2 million. For the full year, Cava earned a restaurant-level profit margin of nearly 25%, which means earnings per share should continue to grow as it expands across the U.S. It currently operates in just 24 states and the District of Columbia.
This restaurant chain has everything a growth investor needs: A concept that is resonating with customers across multiple states, a long runway of growth, and a profitable restaurant model.
A great growth stock at a deep discount
Jeremy Bowman (Roku): The S&P 500 is back at an all-time high, and valuations are soaring in multiple sectors. However, one growth stock has been left behind by the recent rally. That’s Roku (NASDAQ: ROKU).
Shares of the leading streaming distribution platform suffered a double whammy recently. The company delivered a disappointing earnings report in February, and Walmart announced the following week that it was acquiring Vizio, a TV manufacturer with a streaming platform. This sent Roku down again.
Roku is now trading down 41% from its peak in November, setting up a great buying opportunity.
First, there was nothing particularly alarming in the Q4 earnings report last month. Roku beat revenue estimates, but management seemed uncertain about the trajectory of the recovery in the ad market, and the company failed to give specific guidance for 2024. The media and entertainment advertisers that it caters to are still struggling as legacy media companies pivot to streaming, but that should change over the next year or two.
Advertising tiers at services like Netflix, Walt Disney, and Amazon are picking up steam, and new streaming services are expected to launch, like the new sports-focused joint venture from Disney, Fox, and Warner Bros. Discovery. Disney also set a date for its flagship ESPN streaming service next fall, which could be the biggest launch ever in streaming.
The volatility that Roku is currently facing should smooth out over time as digital advertising recovers and the streaming landscape stabilizes. There’s nothing fundamentally wrong with the business, and it still has a huge growth opportunity in front of it, despite a new challenge from Walmart. After all, Roku has grown in spite of competing with tech giants like Amazon, Alphabet, and Apple.
Investors can take advantage of a discount on a stock that could easily be a multibagger over the long term by buying today.
Many millionaires already minted
Jennifer Saibil (Chipotle Mexican Grill): There are few stocks that are as reliable for growth as Chipotle Mexican Grill. It consistently delivers higher sales and profits, and it still has a long growth runway.
Revenue increased 14.3% year over year in 2023, and comparable sales were up 7.9%. It operates with incredible efficiency, and operating margin expanded from 13.4% last year to 15.8% this year. Earnings per share increased 38% to $44.34. Chipotle generated more than $1.2 billion in free cash flow last year, and it carries no debt.
Chipotle was a forerunner of the fast-casual dining segment, and its popular, mid-priced fare draws customers even in more challenging economies. It targets a more affluent, resilient customer who can afford to spend a little more even with high inflation. It’s likely to do even better when inflation moderates.
As of the end of 2023, Chipotle operates 3,437 stores. It opened 271 in 2023, and expects to open about 300 stores this year. It has longer-term plans to expand to 7,000 stores in North America, giving it plenty of room to keep growing. It also recently announced its first-ever international franchise partnership for stores in the Middle East.
Chipotle has been a market-beating stock throughout its lifetime, and by a wide margin. Investors can be confident in its continued opportunities. Even if you’ve missed Chipotle stock’s incredible run until now, you can benefit from its future potential.
Should you invest $1,000 in Cava Group right now?
Before you buy stock in Cava Group, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Cava Group wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.
*Stock Advisor returns as of March 8, 2024
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jennifer Saibil has positions in Walt Disney. Jeremy Bowman has positions in Amazon, Chipotle Mexican Grill, Netflix, Roku, and Walt Disney. John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Chipotle Mexican Grill, Netflix, Roku, Walmart, Walt Disney, and Warner Bros. Discovery. The Motley Fool recommends Cava Group. The Motley Fool has a disclosure policy.
3 Magnificent Stocks That Could Help You Become a Millionaire was originally published by The Motley Fool