One effective way to filter for great companies to own is to observe how well the business performed over five years. This is a sufficient period to assess if management delivered on growth initiatives and if the company managed to latch onto industry tailwinds. Share prices will, over the long term, track the financial health of the business.
You may argue that you cannot enjoy the past successes of a company, and you'd be right to say that. However, I firmly believe that a business enjoys momentum when it is executing well and doing something right, and this momentum can carry on into the future to allow the company to grow and expand further.
Stocks that have multiplied your money over time have a good chance of doing so again. Here are two stocks that would have grown your original investment by several times if you had held them over the past five years.
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Lululemon
Lululemon(NASDAQ: LULU) is a global sports apparel company with more than 570 stores in 17 countries. The company designs apparel for yoga and running using a science-based approach that focuses on proprietary fabrics to deliver performance and a great feel. Investors who held shares of Lululemon over the past five years would have seen their $10,000 turn into more than $54,000 as shares surged from around $53 to $291 over this period.
This superb performance seems justified given Lululemon's impressive results from fiscal 2017 to fiscal 2022. Net revenue more than doubled from $2.3 billion to $6.3 billion while operating income more than tripled from $421 million to $1.3 billion. Net income jumped even more -- from $303.4 million to $975.3 million -- as the company's products gained wide acceptance among a growing number of sports enthusiasts. Lululemon was also unaffected by the pandemic as its sales and profits have continued to grow through online channels despite border closures and movement restrictions.
The company's revenue and net income have continued their upward trajectory for the first quarter of fiscal 2022 with revenue climbing 31.6% year over year to $1.6 billion and net income increasing 31.1% to $190 million. Lululemon has also mapped out its next five-year plan to double revenue to $12.5 billion by 2026 by tapping on its refreshed Power of Three growth strategy.
The company is relying on a three-pronged approach to achieve this: leveraging product innovation to expand its reach into new categories such as tennis, golf, and footwear; doubling its digital revenue by 2026 by building stronger omnichannel connections with its customers; and extending its market presence beyond its traditional core markets. Success in these areas will deliver attractive future returns for investors.
Tractor Supply Company
Tractor Supply(NASDAQ: TSCO) specializes in a variety of home, farming, and pet supplies and equipment through its 2,003 stores in 49 states. The retailer's stock price has surged more than threefold over the last five years, and every $10,000 parked in the company's shares would have grown to more than $35,000, excluding dividends.
Tractor Supply has demonstrated its ability to grow its top and bottom lines from 2016 to 2021. Revenue surged by 87.8% over this period, going from $6.8 billion to $12.7 billion. Net income soared more than twofold from $437.1 million to $997.1 million, with the net profit margin rising from 6.4% in 2016 to 7.8% in 2021. Store count also increased from 1,595 to 2,003 as the company steadily opened new stores around the country. These numbers are a testament to the strong brand equity that Tractor Supply has built up over the years as it rolls out its "Life Out Here" strategy.
The company is seeing many structural trends in place that act as catalysts for its continued growth. An increased focus on homes and farms, along with higher pet ownership, are acting as sustainable tailwinds for Tractor Supply. For its fiscal 2022 first quarter, the rural lifestyle retailer reported an 8.3% year-over-year increase in net sales while comparable store sales inched up 5.2% year over year.
The company is confident that its second-quarter results will see a record performance as it continues to build on its strengths. Its Neighbors Club loyalty program saw a sharp 24% year-over-year jump in members to 24.8 million. Tractor Supply's total addressable market stands at $180 billion, providing the company with significant growth potential. It has also revised its long-term store target to 2,700 from 2,500 in line with increased opportunities to extend its presence. I
Investors who keep the faith with Tractor Supply could see their investments multiplying once again over the next five years.
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Royston Yang has positions in Tractor Supply. The Motley Fool has positions in and recommends Lululemon Athletica. The Motley Fool recommends Tractor Supply. The Motley Fool has a disclosure policy.
