Going big doesn’t mean you have to sacrifice growth. It’s a common misconception that to find millionaire-making stocks you have to invest in small growth companies, but that’s not necessarily the case.
There are plenty of large-cap stocks that are growing fast and could multiply your initial investment over time…
Nintendo: Growing digital sales
If you bought shares of Nintendo in January 2017, a few months before the Switch console launched, you would have already doubled your money. The Switch has been a boon for the Japanese gaming giant, with 41.67 million units sold through the end of September. Trading at a price-to-earnings ratio of 34, the stock is not cheap, but there are good reasons investors are paying a premium for the shares right now.
The stock is not likely going to move higher from here based on more sales of Switch consoles. Despite continued strong sales of the game system over the last year, including the launch of the Switch Lite, full-year sales are only expected to increase by 4.1% this fiscal year (which ends in March). The system is selling well, just not enough to fuel incremental growth on the top line.
From here, the stock could head higher based on improving margins and growing profits. More of Nintendo’s software sales are coming from digital sales, including full-game downloads, Switch Online subscriptions, and add-on content for games, but at just 36% of sales, Nintendo’s percentage of game sales that come from digital channels is much lower than other game makers such as Electronic Arts, Activision Blizzard, and Take-Two Interactive. Those companies generate about three-quarters of their revenue from digitally delivered content, much higher than Nintendo.
Another catalyst for the stock could be stronger-than-expected sales of the Switch in China. However, analysts are not expecting big numbers because Chinese players have historically not been interested in playing on console game systems.
Still, Nintendo’s partnership with Tencent to launch the hardware in China could pay off. Nintendo has exclusive gaming brands you can’t play on anything else but Switch, and Tencent has a strong marketing pull with more than one billion users across its social media apps, QQ, and WeChat.
All in all, Nintendo is a classic gaming brand, with a growing installed base of Switch owners who will likely spend more money on games over the next year. Throw on top of that Nintendo’s increasing push into mobile games, in which its recent Mario Kart Tour has performed well, and the stock should remain a good investment even at these elevated levels.
Square: Improving profit margins
For Square, it’s been a seesaw battle between the bulls and the bears over the last year. On one hand, revenue growth remains robust, coming in at 44% year over year in the third quarter. That was good enough for the company to raise its full-year guidance. On the other hand, it’s been difficult for investors to get a handle on Square’s lack of profitability; the company continues to plow everything back into future growth — although that’s not a bad thing if you have a long-term mindset.
Square’s investments in seller tools for merchants earn a quick payback on investment within about four quarters. The seller ecosystem is on pace to earn an adjusted (non-GAAP) EBITDA (earnings before taxes, interest, depreciation, and amortization expense) margin of nearly 30% this year.
With that much profitability in the core business, management is shifting resources to double down on investments in the seller ecosystem. Square just sold the Caviar restaurant ordering platform and is now ramping up its investment in performance marketing to educate business owners about the Square product offering and expand its user base. Since April, key metrics like awareness, web traffic, and revenue contribution have been higher since management initiated a new marketing campaign.
Another key aspect to Square’s future growth is the Cash App — one of the most widely used peer-to-peer payment apps. Square is continuing to expand the ways individuals can engage and use the app as a daily cash utility tool. The latest move is to allow Cash App users to trade fractional shares of stocks. This opens the door for even more people to join the app and take advantage of the all-in-one solution Square is providing for everyday finances. Excluding bitcoin transactions, the Cash App generated revenue of $159 million in the third quarter, more than doubling year over year. It’s not generating a profit yet, but further top-line growth like this will eventually put the Cash App in the green as scale kicks in.
The broad capabilities Square has across seller software services, point-of-sale solutions for businesses, and long-term upside with the Cash App are why investors should consider buying the stock — before better news sends the shares higher…
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