Growth investors know that they need to be willing to act when they find a company that looks promising. So which growth stocks do we think are worthy of your investment dollar today? We asked a group of Fools to answer that very question and they selected Starbucks (NASDAQ:SBUX), Wynn Resorts (NASDAQ:WYNN), and Supernus Pharmaceuticals (NASDAQ:SUPN).
A caffeinated rebound
Demitrios Kalogeropoulos (Starbucks): If you don’t mind some volatility sitting between you and market-beating returns, take another look at Starbucks. Yes, the coffee titan is enduring a sales slowdown at the moment. Customer traffic declined over the past six months, which caused both revenue and profits to dip below management’s long-term forecasts.
That slump might not last for very long. Starbucks is rolling out major menu enhancements aimed at bulking up food sales during the critical lunch hour. CEO Kevin Johnson and his team think this initiative could add as much as a full percentage point to comparable-store sales growth in the U.S. market over time. As for the immediate future, executives in late April noted accelerating demand that made them confident they’ll hit their full-year targets calling for sales gains of about 10% as earnings jump by between 15% and 20%.
While it works to improve trends in the domestic market, Starbucks is proceeding on schedule with its international expansion. The beverage specialist will open 2,400 new locations around the world this year, with a big portion of these set for the Chinese market. By 2021, Starbucks should roughly double its presence in China as it bulks up its global store base by nearly 50%. That global brand strength, along with a world-class digital selling infrastructure, gives this business key advantages over peers that should power long-term growth even as shoppers move their spending online.
May the odds be ever in your favor
Travis Hoium (Wynn Resorts): Investors watching the gaming market closely know that Macau, not Las Vegas, is the real king of the gaming industry. It generates nearly five times as much gaming revenue as the Las Vegas Strip, and there are just six gaming companies allowed to operate in the region. Wynn Resorts is one of them.
Wynn has put itself in a wonderful position today as an industry leader at the high end of the Macau market where VIPs gamble millions of dollars per day. And in the first quarter, VIP baccarat play was up 16.8% compared to a 6.5% increase in regular baccarat play. And in Macau, baccarat is the only game of chance worth talking about with 88% of the market.
Not only was Wynn an industry leader with the Wynn Macau resort on the Macau Peninsula, but it just completed the $4.4 billion Wynn Palace in the Cotai region. When the resort is fully operational and construction surrounding the property is completed, it’s likely the resort will generate well north of $500 million of EBITDA annually (a proxy for cash flow) and could approach $1 billion in EBITDA if Macau keeps growing.
On top of Wynn Palace, the company is building Wynn Boston Harbor and is expecting to tear down the golf course behind Wynn Las Vegas this winter to build entertainment and convention space. Wynn is well positioned as one of only a few players in Macau and has properties under construction that will add to cash flow in the long term. As a leader in high-end gaming and entertainment, Wynn Resorts is just getting started with its growth.
Not your typical small-cap biotech
Brian Feroldi (Supernus Pharmaceuticals): The vast majority of small-cap biotechs are still in the clinical stage, which generally means they are burning through cash in an attempt to bring an exciting compound to market. While these types of companies can be fun to own when things work out, they can also fall drastically when something goes awry.
One way for investors to protect themselves from potential plunges is to buy small-cap biotechs that are already profitable. While these businesses are few and far between, Supernus Pharmaceuticals has already crossed into the black. The company is profitable thanks to its two epilepsy drugs that are already on the market: Oxtellar XR and Trokendi XR. Sales of these drugs increased 17% last quarter to $134 million thanks to increased market demand. Better yet, the company’s profits soared by 138% thanks to positive operating leverage.
Looking ahead, analysts expect Supernus’ rapid profit growth rate to continue for quite some time. Near-term results are expected to be driven by continued sales gains of Oxtellar XR and Trokendi XR, as well as by royalties received from Shire‘s recently approved drug Mydayis. Mydayis is being commercialized by Shire but it was developed by Supernus, so the company will receive a single-digit royalty based on future sales. Longer term, investors have high hopes for two of Supernus’ late-stage pipeline drugs — SPN-810 and SPN 812 — both of which are potential treatments for attention deficit hyperactivity disorder.
All in all, Supernus Pharmaceuticals is profitable, fast-growing, and offers upside potential if its pipeline compounds work out. That makes it a great stock for growth-focused investors to get to know.
Brian Feroldi owns shares of Starbucks. Demitrios Kalogeropoulos owns shares of Starbucks. Travis Hoium owns shares of Wynn Resorts. The Motley Fool owns shares of and recommends Starbucks. The Motley Fool has a disclosure policy.