The Key to Unlocking Stock Market Success: Earnings Growth
As the renowned investor Peter Lynch once said, “Earnings are the key to success in investing in stocks.” This philosophy has been a guiding principle for many successful investors, including myself. By focusing on earnings growth and predicting future trends, I aim to make informed investment decisions that yield long-term results.
Case in Point: Sprouts Farmers Market
Take Sprouts Farmers Market as an example. Despite consistently increasing its earnings per share (EPS) since going public 11 years ago, the stock price remained stagnant for a decade. However, in the past year, the stock has skyrocketed 200%, finally reflecting its long-term EPS growth. This demonstrates the importance of patience and the potential rewards of investing in companies with strong earnings growth.
Three Phenomenal Stocks Poised for Growth
I believe Airbnb (NASDAQ: ABNB), PayPal Holdings (NASDAQ: PYPL), and PubMatic (NASDAQ: PUBM) are three phenomenal stocks set to soar in the coming years. Here’s why:
- Airbnb: A Well-Established Travel Booking Platform
With over 125 million nights and experiences booked in the second quarter of 2024 alone, Airbnb is a well-known and well-adopted travel booking platform. Its business model is extremely lucrative, with a second-quarter profit margin of 20% and a 41% free cash flow margin. While growth may be slowing, management is turning its attention to new initiatives, aiming to launch multiple new businesses every year. - PayPal: A Fintech Pioneer on the Path to Earnings Growth
After a lackluster period, PayPal is on a better path for earnings growth. The company has reworked its management, forging important new partnerships, improving margins, and developing new ways to grow the business. With valuable consumer data and a new advertising business, PayPal’s earnings should finally return to growth, lifting the stock price in the coming years. - PubMatic: A Small but Mighty Advertising Technology Company
Despite being a smaller and lesser-known company, PubMatic is determined to keep a clean balance sheet, owning and operating all its hardware infrastructure. As an advertising technology company working with publishers to monetize content, PubMatic is modestly growing and running a profitable business. With a strong foundation, it’s poised for earnings growth when the market heats back up.
Investor Takeaway
When investing in these three phenomenal stocks, it’s essential to focus on earnings growth rather than short-term stock prices. As demonstrated by Sprouts Farmers Market, stock prices can stagnate for extended periods, but if earnings are growing, and the business has opportunities for further growth, these stocks will be worth holding onto, expecting prices to eventually catch up.
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