In this piece, we will take a look at the ten best growth stocks for the next ten years based on their five year revenue growth and trailing price to earnings ratio. If you want to skip details about growth and valuation investing, then skip ahead to 5 Best Growth Stocks for the Next 10 Years.
Even though the broader economy has been facing several shocks over the past year and a half, some sectors have managed to weather the storm and bring in revenue. 2022, a year marked by instability in the global energy market, saw liquefied natural gas (LNG) providers and big and small oil firms see massive growth in the market as countries shifted their energy sourcing patterns. This resourcing came amidst a broad inflationary wave that hit smaller and larger economies hard – particularly those that have to import petroleum products to generate power and operate vehicles.
However, even as most media attention remained on petroleum energy, uranium prices also soared as the Sprott Physical Uranium Trust – the world’s largest physical uranium fund which currently owns 6.1 million pounds of uranium- sped up purchases of the mineral. These purchases made uranium quite profitable as spot prices jumped by 24% annually by October 2022.
These sectors, which see strong markets, also see performance improve on the equity markets. For instance, from the drop at the start of the coronavirus market shock that saw its shares tank to below $70, Chevron Corporation (NYSE:CVX)’s stock has gained 131% or $90 in value. The firm’s revenue also soared to new highs last year, and it was met by other oil firms, both large and small that shared the rise in fortunes as the historically known sector for growth, technology, fell due to inflation making a mark on consumer and corporate purchasing powers.
Yet, there is a stark difference between the value of the stock and the firm’s fundamentals. Market sentiment, especially when it comes to hundreds of thousands of shares trading each day, can miss out on structural weaknesses in a company’s operations that might have a negative impact on the stock price in the future. To somewhat link the market sentiment, or the share price, with what’s reflected on the firm’s financial record of performance, or the balance sheet, analysts and investors use a wide variety of different ratios.
One highly popular ratio is the price to earnings or P/E. The P/E ratio simply divides the firm’s market price with its earnings per share. Earnings are the amount left as a profit after direct, indirect, fixed, and variable manufacturing costs are accounted for and naturally they are also the only money that shareholders can receive from the business – usually in the form of dividends. Growth companies reinvest earnings back into operations and this often drives the P/E ratio higher as current investors expect higher future returns. Yet, on the flip side, should the money spent for growth bear no fruit, then the share price will drop.
The P/E ratio being used solely for its value can be misleading especially since not only are there multiple ways to calculate earnings per share but also because it can either be calculated on past or future earnings. These ratios are dubbed trailing and leading P/E ratios, respectively, and they either use past information that is not indicative of future performance or future projections that might miss out on both beneficial and harmful future developments.
Switching gears, 2023 has been the year for growth stocks particularly since the economy has surpassed investor and analyst expectations of resilience against rapid interest rate hikes. This pivot comes after a rough 2022 that saw growth stocks, such as big tech, tank and the value sector post less than one third of these losses. In 2022, the Russel 1000 Growth index lost 30% of its value, while the Russel 1000 Value index weathered the storm and dropped by 10%.
This makes it clear that investing in value stocks alone provides a buffer in a tough market and this might also sustain in the broader term to reverse any losses and even post gains. For instance, consider the fact that while the Russel value index dropped in 2022, the S&P500 Value index is up 14.5% year to date – which not only reverses the losses posted by Russel last year but also posts a modest 4% gain. This gain, of course, fades away when we look at the top of the top stocks in the NASDAQ 100 index, which as a whole have returned an impressive 45% gains year to date.
So, what if you could combine value, i.e. low P/E stocks and companies that are posting high revenue growth and see which firms come out on top? We’ve tried our hand, and the top three stock picks are Netcapital Inc. (NASDAQ:NCPL), Chimerix, Inc. (NASDAQ:CMRX), and Navios Maritime Partners L.P. (NYSE:NMM).
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Our Methodology
To compile our list of the best growth stocks we first made a list of firms that are posting strong sales growth over the past year and the past three to five years. These were ranked in ascending order through their trailing P/E ratio, and the top ten firms are listed below.
10 Best Growth Stocks for the Next 10 Years
10. Great Elm Group, Inc. (NASDAQ:GEG)
Trailing P/E Ratio: 3.62
Great Elm Group, Inc. (NASDAQ:GEG) is an investment management that also formerly sold medical equipment such as ventilators. Its three year annualized revenue growth rate sits at 9.2% but the only analyst covering the shares has rated them Hold. Great Elm Group, Inc. (NASDAQ:GEG)’s fiscal third quarter results released in May saw the company report $80 million in proceeds from the sale of its equipment business.
Insider Monkey took a look at 943 hedge funds for their first quarter of 2023 shareholdings and discovered that seven had invested in Great Elm Group, Inc. (NASDAQ:GEG). Out of these, the firm’s largest shareholder is Matthew Drapkin and Steven R. Becker’s Becker Drapkin Management since it owns 3.6 million shares that are worth $8.2 million.
Great Elm Group, Inc. (NASDAQ:GEG), Netcapital Inc. (NASDAQ:NCPL), Chimerix, Inc. (NASDAQ:CMRX), and Navios Maritime Partners L.P. (NYSE:NMM) are some top cheap and high growth revenue stocks.
9. PDC Energy, Inc. (NASDAQ:PDCE)
Trailing P/E Ratio: 3.14
PDC Energy, Inc. (NASDAQ:PDCE) is an American firm with operations in Colorado and Texas. Its ten year, five year, and three year average revenue growth rates sit at 29%, 36%, and 48% respectively as of December 2022 while revenue and operating income both fell annually in the latest quarter.
30 of the 943 hedge funds part of Insider Monkey’s Q1 2023 database had bought the firm’s shares. Natixis Global Asset Management’s Harris Associates is PDC Energy, Inc. (NASDAQ:PDCE)’s largest shareholder with an investment of $116 million.
8. Lizhi Inc. (NASDAQ:LIZI)
Trailing P/E Ratio: 2.78
Lizhi Inc. (NASDAQ:LIZI) is a Chinese software firm that provides social networking and live streaming platforms. Only one analyst note covered the stock in June and it rated the shares as a Strong Buy. Spending on the platform is naturally affected by the Chinese economy’s state, but crucially, the latest quarter saw an annual 22% revenue growth. This sits almost nearly in line with the 22% annual three year average growth rate as of December 2022, and the five year growth is positive as well.
Insider Monkey took a look at 943 hedge funds for 2023’s first quarter and found out that two had invested in Lizhi Inc. (NASDAQ:LIZI). Jim Simon’s Renaissance Technologies is the largest investor among these, owning $129,000 worth of shares.
7. Earthstone Energy, Inc. (NYSE:ESTE)
Trailing P/E Ratio: 2.69
Earthstone Energy, Inc. (NYSE:ESTE) is an American oil and gas operations firm with sites mainly in New Mexico and Texas. Analysts have penned in a nearly $10 share price upside, and the company has grown its revenue by 66% on average over the last ten years. At the same time, this growth appears to be sustained as the latest quarter saw 110% revenue growth. Analysts have rated the stock as Buy on average, and two of the ten notes covering the shares in July have rated them as a Strong Buy.
As of March 2023, 19 of the 943 hedge funds part of Insider Monkey’s database had held a stake in the company. Earthstone Energy, Inc. (NYSE:ESTE)’s biggest hedge fund shareholder is Shaia Hosseinzadeh’s OnyxPoint Global Management through a stake worth $72 million.
6. Zymeworks Inc. (NASDAQ:ZYME)
Trailing P/E Ratio: 2.67
Zymeworks Inc. (NASDAQ:ZYME) is a biotechnology firm that develops treatments for cancers that target organs such as the colon and the breasts. The stocks are rated Strong Buy on average and the share price has close to a 100% upside based on the average analyst share price target. Zymeworks Inc. (NASDAQ:ZYME)’s five year average growth rate is 51.45% and the latest quarterly annual growth rate sits at a cool 1,756%.
By the end of Q1 2023, 24 of the 943 hedge funds polled by Insider Monkey had held stakes in Zymeworks Inc. (NASDAQ:ZYME).
Netcapital Inc. (NASDAQ:NCPL), Zymeworks Inc. (NASDAQ:ZYME), Chimerix, Inc. (NASDAQ:CMRX), and Navios Maritime Partners L.P. (NYSE:NMM) are some great cheap growth stocks.
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Disclosure: None. 10 Best Growth Stocks for the Next 10 Years is originally published on Insider Monkey.