Christmas isn't generally the time of year for long-term thinking. Instead, it's the perfect occasion to indulge in good food and wine, as well as splurge on presents for friends, family – and possibly even pick up a few treats for yourself. But as the hangover clears on Boxing Day, it might be time to starting thinking of the future again.
So here are 5 stocks that I think have great long-term growth potential and could fund your indulgences for many Christmases to come.
Red Bubble Limited (ASX: RBL)
Founded in Melbourne in 2006, Red Bubble is an online marketplace which connects independent artists and designers with customers from across the world. Artists can upload their designs to the website, and customers can then choose a design they like and have it printed on a variety of products, like smartphone covers, t-shirts, tote bags or mugs. Red Bubble then ships the item to the customer, and the artists take a cut of the profits.
The homespun, highly individual nature of the products appeals to a millennial hipster generation who are doing an ever-increasing amount of their shopping online. This bears out in the company's financials: gross transaction value, or the total of sales processed through the Red Bubble website, was up 32% in FY18 to $231 million.
Livetiles Ltd (ASX: LVT)
Livetiles is an Australian IT company that develops software to help businesses create their own internal dashboards, intranet portals and online working environments. The company uses AI and machine learning technology to create software solutions that are intuitive, easily customisable and that can offer businesses ways to increase collaboration and efficiency amongst their employees.
A key reason to be excited about Livetiles is that it is growing its recurring revenues at a staggering rate. On an annualised basis, recurring revenues for the quarter ended 30 September 2018 were up 272% year-on-year to $18.6 million. Strong recurring revenue growth is an excellent sign – especially in a young company – as it gives management greater faith in their incoming cash flows and means they can budget better to grow their business.
ELMO Software Ltd (ASX: ELO)
ELMO produces a suite of cloud-based software delivering HR and payroll solutions. The company's share price has been on a steady downward trajectory recently, falling from its August high of $8.51 to just $5.15 at the time of writing. This selloff is probably due to investors getting jittery about ELMO's guidance for FY19 EBITDA, which at just $1.1 million is a big drop from the $2.7 million EBITDA it posted in FY18.
The cause of the decline is heavy investment in marketing and R&D. But I don't mind this too much because – as with Livetiles – a healthy amount of ELMO's revenues are recurring and subscription-based, allowing management greater freedom to invest in growth opportunities. For this reason, I believe investors who stick with ELMO will be handsomely rewarded over the longer-term.
CSL Limited (ASX: CSL)
It seems odd calling a global biotech giant with a market cap of over $80 billion a growth stock but CSL is no ordinary company. For FY18, CSL reported NPAT growth of 28% on a constant currency basis to a little over $1.7 billion. This was against revenues of $7.9 billion for the year – an uplift of 11% on a constant currency basis. This level of bottom line growth shows that CSL's profit margins are increasing quickly, even as it spends upwards of $600 million a year on R&D.
After a heavy selloff over the back end of 2018, CSL is now trading at just $178.26 – well shy of the 52-week high of $232.69 it hit back in September. If it can reach those highs again in 2019, an investment in CSL may well reward longer-term investors who can ride out this short-term market volatility.
WiseTech Global Limited (ASX: WTC)
Tech stocks have had a hard time of it recently. As global equities markets have become more volatile over the last few months, high P/E ASX stocks like WiseTech, Altium Limited (ASX:ALU), Nextdc Limited (ASX:NXT) and Appen Limited (ASX:APX) have all suffered heavy losses.
However, at the risk of sounding like a broken record, I like WiseTech for the same reasons I like ELMO and LiveTiles: close to 90% of the $222 million in revenues WiseTech generated in FY18 were recurring. Coupled with its aggressive M&A strategy, I think this sets WiseTech up to deliver strong long-term growth to shareholders.
