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2 Growth Stocks That Could Turn $1,000 Into $3,500 in 10 Years

Motley Fool - Thu Aug 24, 5:25AM CDT

After a rather abysmal performance on the stock market for most of 2022, growth stocks have rebounded this year with a vengeance. This could continue for at least a little while as the S&P 500 appears to be heading into a bull market.

But even beyond this potential bull run, there are solid growth-oriented companies that can deliver solid returns through the next decade. Two of them are Veeva Systems(NYSE: VEEV) and Airbnb(NASDAQ: ABNB). Here's why these companies could turn $1,000 into $3,500 in the next decade -- which is a compound annual growth rate (CAGR) of 13.3%.

1. Veeva Systems

Several factors make Veeva Systems an excellent buy-and-hold stock. First, the company boasts excellent growth prospects in its industry.

Veeva Systems is a leader in a narrow niche of the cloud computing market that appeals to pharmaceutical and biotechnology companies. These corporations operate in a highly capital-intensive industry that's a legal and regulatory maze.

The company helps simplify things with a suite of cloud-based services that speed up and help simplify a drugmaker's process of bringing its products to the market. Veeva Systems estimates a total addressable market (TAM) of $13 billion. Its trailing-12-month revenue is just over $2 billion.

VEEV Revenue (TTM) Chart

VEEV Revenue (TTM) data by YCharts.

If Veeva Systems grows its top line at a CAGR of 13.3% through the next decade, it will still have captured a little over half of its TAM. However, the company's opportunities will grow with the healthcare and life sciences industries. That bodes well for its future.

Here's the second reason the company is a solid buy-and-hold option: It benefits from an economic moat through high switching costs.

There are other cloud providers, but Veeva's clients risk disrupting their operations if they decide to jump ship to one of the company's competitors. Veeva Systems' retention rates generally come in above 100% -- implying that many customers come back yearly requesting even more services.

It's true that the company's revenue growth rates have declined recently, largely due to the challenging economy, which will rebound eventually. Veeva Systems' financial results have generally been on an upward trajectory. That includes the company's gross margins, currently at 70%.

VEEV Revenue (Quarterly) Chart

VEEV Revenue (Quarterly) data by YCharts.

Thanks to the company's moat and excellent growth prospects, it's well-positioned to deliver the kinds of returns that will turn $1,000 into $3,500 in the next 10 years.

2. Airbnb

People love to travel, and I don't foresee this changing in the next 10 years. Airbnb can make people's trips more enjoyable by providing vacation rentals that cater to their tastes, preferences, and wallets.

Airbnb's platform also helps travelers find fun activities, often at reduced prices. The company benefits from a competitive advantage, too.

With hosts and guests seeking more of one another on Airbnb's platform, the value of its service increases with use. That's an example of the network effect. And it can help Airbnb remain a leader in this field, even with fierce competition from several larger companies such as Booking Holdings. Airbnb's top-line growth has slowed since last year, when people were still taking full advantage of the fact that they could finally travel again.

Still, the company's financial results remain robust. In the second quarter, Airbnb's revenue of $2.5 billion jumped by 18% year over year. The company reported a net income of $650 million, compared to just $379 million in the year-ago period.

Airbnb hasn't been consistently profitable for that long but has been improving on the bottom line over the past few periods. Its net margin for the quarter was 26%, which, according to management, is the highest it has ever recorded for a second quarter.

Airbnb also boasts incredibly high gross margins, which came in at about 82.3% for the period.

Solid revenue growth and expanding margins are always a good combination. Airbnb isn't perfect, as the company has had to deal with complaints regarding the transparency (or lack thereof) of its pricing, among other issues.

Airbnb has made an effort to deal with some of these problems by instituting new features on its platform. In my view, the company's momentum will continue for a while, and it's more than capable of delivering excellent returns through the next decade and beyond.

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Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Airbnb, Booking Holdings, and Veeva Systems. The Motley Fool has a disclosure policy.

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