4 monster shares in the making

SEEK Limited (ASX:SEK) and XERO FPO NZ (ASX:XRO) may have plenty of growth ahead of them yet.

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The speculative end of the share market is full of loss-making companies or businesses with little to no revenues all with exciting stories to tell as to why they're poised to be the next big thing.

After all, share markets exist so companies can raise capital. It's the job of the investor to decide which companies are worth allocating capital to, with most companies at the speculative end of the market likely to blow up your capital.

So if you want to take on higher risk investments it makes sense to look for businesses already growing revenues and on the verge of profitability. As these businesses can still produce spectacular returns, without the requirement to take on extreme amounts of risk as a get-rich-quick dream almost always turns into a capital-losing nightmare.

Below I name four companies that are growing revenues at strong rates and just tipping into profitability or already profitable. All four could keep delivering big capital gains for investors over the long term.

XERO FPO NZ (ASX: XRO) is the cloud-accounting business that just tipped into positive operating income (EBITDA) (excluding share-based payments) for the six-month period ending 31 March, 2017. Xero also grew operating revenue 43% over its financial year ending 31 March, 2016, and retains a robust growth outlook thanks to its global horizons, widening network effect, and market-leading product. Not to mention that the shift of small business accounting from traditional Excel formats to the cloud is only just beginning around most of the world.

As such, I rate the stock a buy at $23.56 today.

CogState Limited (ASX: CGS) is an under-the-radar clinical brain function testing business that just posted 28% revenue growth for the full year ending June 30, 2017. Revenues came in at $34.7 million, but due to increased investment in growth opportunities the company posted an $823,000 loss over the year and marginally positive operating income.

The group expects to grow revenues strongly in FY18, has no debt, and cash on hand of $9.3 million. Its management team also own more than 40% of the shares on issues between themselves. The kicker is the valuation of around $120 million looks pretty reasonable given its financials and outlook. The stock could deliver investors robust returns from here and sells for $1.07.

Just Eat Group (LON: JE) is admittedly listed on the London Stock Exchange, but is worth a look given how it demonstrates the power of a network effect for digital marketplaces in any space. As the owner of Aussie digital takeaway Menulog and similar businesses worldwide it's growing at breakneck rates due to a network effect that attracts the most buyers (orderers) and sellers (restaurants).

Digital marketplaces in Australia to have built and continue to build similar network effects include property portal REA Group Limited (ASX: REA) and jobs portal SEEK Limited (ASX: SEK). In particular SEEK is investing heavily in large overseas markets like China (with its Zhaopin.com website), South East Asia, and Latin America to develop the dominant jobs boards of tomorrow.

Its shares don't come cheap, but it has potential to deliver robust growth over a 5 to 10-year time horizon.

Motley Fool contributor Tom Richardson owns shares of Just Eat, REA Group Limited, SEEK Limited, and Xero. You can find Tom on Twitter @tommyr345 The Motley Fool Australia owns shares of Xero. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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