There are roughly 4,700 stocks on U.S. exchanges with a market capitalization over $50 million. Of that group, 94 — almost exactly 2% of the total — have been the best stocks in the market over the past year, gaining more than 100% over that period.
From a sector standpoint, there aren’t a lot of surprises in the group. The three best stocks over the past twelve months all are biotechnology plays — a sector that often provides either huge gains or huge losses. Small-cap tech, another high-risk, high-reward category, provides another chunk of winners, including stocks like Digital Turbine (NASDAQ:APPS) and GlobalSCAPE (NYSE:GSB), both of which have tripled in 2019 alone.
The obvious question is how these stocks will perform going forward. In some cases, 100%+ gains are a sign of a company significantly outperforming expectations. In others — particularly in what remains a bull market — that kind of upside suggests a stock that may have outrun its fundamentals. These 10 stocks all have posted big gains over the past year, but some may head in a very different direction over the next twelve months.
What You Can Expect From the Best Stocks of 2018 Today: Shopify (SHOP)
1-Year Performance: +140%
The gains in Shopify (NYSE:SHOP) stock have been truly impressive. No stock in the market has added more value over the last 12 months than SHOP stock. Shopify’s market capitalization has risen by nearly $23 billion over that period. To put that figure into perspective, those gains are equal to the entire market capitalization of United Airlines (NASDAQ:UAL).
What makes the rise even more impressive is that all of the gains have come just in 2019. But at this point, there’s an obvious question as to whether the gains can continue. SHOP stock trades at a staggering 18x next year’s revenue estimates, and roughly 350x 2020 consensus earnings-per-share. This week, InvestorPlace contributor Josh Enomoto argued that it was time to take profits in SHOP — it’s difficult to disagree with that sentiment.
That said, there’s little reason to see the gains suddenly ending. New plans to provide fulfillment for online sellers add another potential profit stream for Shopify. More broadly, investors who have seen growth stocks as “too expensive” in this market generally have missed out on big gains. (Indeed, I made precisely that case on SHOP stock earlier this year; that argument looks close to silly in retrospect.)
It does seem like at some point SHOP stock at least needs to slow down, given valuation multiples that are the highest in the market among stocks its size. But nothing has stopped Shopify stock yet, which might mean it can continue to defy gravity for some time to come.
Axsome Therapeutics (AXSM)
1-Year Performance: +876%
Even including nano-caps, no stock in the market, on a percentage basis, has outperformed Axsome Therapeutics (NASDAQ:AXSM). AXSM stock has gained a stunning 876% over the past year and it has risen 783% in 2019 alone.
These types of gains aren’t completely unprecedented in the biotechnology space, where stocks can rise by several hundred percent — or lose most of their value — on a single trial result. And Axsome’s flagship compound, AXS-05, has real potential. The drug has entered Phase III trials for treatment of major depressive disorder, agitation in Alzheimer’s and smoking cessation.
With a market cap still under $1 billion, AXSM stock could run higher if trials further validate the company’s core product. Compounds elsewhere in the pipeline aim to treat migraines and narcolepsy, among other disorders. But as biotech investors know all too well, it takes only one piece of bad news for big gains to reverse in a hurry.
Amarin Corporation (AMRN)
1-Year Performance: +481%
The good news for Amarin Corporation (NASDAQ:AMRN) is that its stock is up 481% over the past 12 months. The bad news might be that its stock is down 15% over the past 10 months.
Indeed, all of the stock’s gains came in a short burst last September. A successful clinical trial of the company’s Vascepa, a prescription Omega-3, led AMRN to better than quadruple in a single day. The stock kept rising, gaining 579% in just nine sessions.
Since then, however, some of the old skepticism toward Amarin has returned. After all, bears argue, Vascepa simply is derived from fish oil, which in theory means it can be easily replicated.
But Wall Street, at least, sees it very differently. The average target price of $33 suggests nearly 100% upside from current levels. It very well could be that, once again, skeptics toward AMRN are going to miss out on big gains.
Coca-Cola Consolidated (COKE)
1-Year Performance: +114%
It’s not entirely clear why Coca-Cola Consolidated (NASDAQ:COKE) has gained so significantly over the last year. The company is a bottler for Coca-Cola (NYSE:KO), which is hardly the type of business model to see 100%+ gains over a short period of time.
Coca-Cola Consolidated has posted decent results so far this year, but they’ve hardly been spectacular. First-half physical case volume rose just 0.3% year-over-year. Gross profit dollars did increase 8%. But this is a stock now trading at 39x the sole analyst estimate for next year. That seems like a huge multiple for a business that is posting single-digit growth.
There is a theory that COKE stock has risen because some smaller investors — potentially those using the Robinhood app — are mistaking COKE for KO. Whatever the cause, it does seem like COKE has run too far. But even if that’s the case, it’s not clear when the stock will pull back, or how far it might have to fall.
Match Group (MTCH)
1-Year Performance: +115%
Last May, shares of Match Group (NASDAQ:MTCH) fell 22% in a single session. The decline didn’t come from anything Match itself had done. Rather, Facebook (NASDAQ:FB) had announced its entry into the dating space and investors fled MTCH stock as a result.
Those investors that sold Match Group stock would regret it. Since that selloff, MTCH stock has nearly tripled. It has gained 115% over the past year, with its $15 billion gain in market value second only to Shopify.
The gains may not be over. MTCH gained 24% on Wednesday after a blowout quarter. The user base for Tinder continues to soar, with subscribers rising 39% year-over-year in the second quarter. Match is dominating online dating — a market that should only grow in the U.S. and, more importantly, overseas.
To be sure, MTCH stock isn’t cheap at these levels. It trades at 46x 2020 EPS estimates, even though those estimates are likely to rise after the company forecast stronger growth in the second half of 2019. But, in this market, online plays that dominate their space get big multiples (see Etsy (NASDAQ:ETSY), for instance). And betting against MTCH has proven to be foolhardy so far.
1-Year Performance: +145%
One of the more difficult aspects of this bull market is that investors have had to figure out how to value stocks whose earnings are negative. Data play Workiva (NYSE:WK) is one of those stocks. The company is guiding for an adjusted operating loss in 2019 — yet WK stock gained 13% on Wednesday after updating that outlook.
To be sure, data preparation and collection has been a hot space. Salesforce (NYSE:CRM) paid $15.7 billion for Tableau Software earlier this year. Smaller data prep play Datawatch was taken out by Altair Engineering (NASDAQ:ALTR) late last year. More broadly, investors clearly have been willing to pay up for growth in recent years.
That said, there is a case that the gains in Workiva stock have gone a bit too far. WK now trades, even backing out cash, at over 9x revenue. Growth is solid, but at a guided 19% this year not quite spectacular. At the very least, it does look like the easy money has been made.
The Trade Desk (TTD)
1-Year Performance: +189%
So-called “adtech stocks” like The Trade Desk (NASDAQ:TTD) hadn’t been very good investments until recently. Rocket Fuel went closed its first day of trading at $55 and sold itself for less than $3 to Sizmek. The combined company wound up selling its assets for just $36 million.
YuMe went public at $9 — and sold for less than $2. Marin Software (NASDAQ:MRIN) is down 98% from its highs.
But for the winners, including The Trade Desk, the news has become notably better of late. While leaders like Facebook and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) took up most online advertising growth, other providers are starting to flex their muscles. So-called “programmatic” marketplaces like the one run by TTD are seeing greater adoption as a result.
TTD isn’t alone in soaring. The Rubicon Project (NASDAQ:RUBI), after losing 90% of its value, has risen 400% from early 2018 lows — and roughly matched TTD’s performance over the past year.
For TTD, valuation does look a bit stretched: The stock trades at 70x next year’s EPS estimates. And it’s worth wondering what happens if the online advertising space sees another soft patch, as it did just a few years ago. This seems like a story that sounds better on paper — online advertising growth should continue for years going forward — than in practice. The market may grow, but the history of that market shows that third-party providers don’t always benefit.
Cronos Group (CRON)
1-Year Performance: +145%
Cannabis stocks like Cronos Group (NASDAQ:CRON) have mostly pulled back in the past few months. And so performance over the past twelve months generally doesn’t look all that impressive.
CRON stock, too, has pulled back, dropping almost 40% from March highs. But even with that weaker trading of late, the stock still has gained 145% over the past year, and is up 1,000% from 2017 levels.
The question with CRON, as it is for much of the sector, is whether valuation remains stretched even after the pullback. The Canadian market looks somewhat disappointing. Legalization elsewhere is moving slower than hoped. And as I wrote last month, Cronos is taking its time as the market develops, which suggests investors should do the same.
That said, marijuana companies still have a massive potential opportunity worldwide. And it’s possible the weakness of late, in retrospect, will look like a buying opportunity. But patience might be a virtue when it comes to Cronos Group stock.
1-Year Performance: +142%
High-growth software plays are trading at nosebleed valuations. But even in that context, MongoDB (NASDAQ:MDB) is one of the most expensive stocks out there. MDB stock trades at well over 20x 2019 revenue.
Of late, however, the rally has stalled out somewhat. MDB has pulled back 23% from highs reached after fiscal Q1 earnings in June. Recently, InvestorPlace contributor Luke Lango argued that the weakness was a buying opportunity, and given the company’s explosive growth, there’s a case he’s right. Revenue increased 78% year-over-year in the fiscal first quarter, and increased adoption of the company’s platform should keep growth sizzling for some time to come.
That said, this remains a company valued at $8 billion, with negative earnings. And in a suddenly jittery market, it’s not hard to wonder if a better price might be on offer. Investors so far have been rewarded for shrugging off valuation concerns. But as with so many software plays, the question is for how long that will last.
1-Year Performance: +158%
The 12-month gains in Roku (NASDAQ:ROKU) are reasonably impressive. YTD performance, however, has been even better. ROKU stock now has nearly quadrupled so far this year, easily reversing a steep decline in last year’s fourth quarter, and then some.
Here, too, the question is whether the gains have to end at some point. Roku’s growth is impressive. Q2 earnings look like a blowout. Its importance to the streaming media ecosystem at a time of cord-cutting is obvious. But its valuation, as I wrote in June, is even steeper than headline numbers suggest.
After all, about one-third of this year’s revenue will come from the sale of Roku players. Gross margins in that business are in the single-digits, meaning hardware sales are likely unprofitable. Back out that revenue, and ROKU stock trades at over 20 times its guidance for platform (i.e., digital), revenue.
That figure, in the context of the overall market, doesn’t sound that high. Of course, that raises the question of whether the market simply has pushed growth stocks like ROKU and MDB too far. But that worry aside, Roku still gets minimal revenue from Netflix (NASDAQ:NFLX) and Alphabet unit YouTube — two of the biggest companies in streaming. And so the argument that Roku is a natural beneficiary of cord-cutting seems thinner than some investors might think.
It may be that streaming offerings from Disney (NYSE:DIS), Comcast (NASDAQ:CMCSA) and AT&T (NYSE:T) will accelerate revenue growth, as those media companies fight for consumer attention. Roku could be an acquisition target at some point. Those potential catalysts are part of all the good news that surrounds Roku. The question after nearly 300% gains in seven-plus months is whether even those catalysts are priced in.
As of this writing, Vince Martin did not hold a position in any of the aforementioned securities … though he wishes he did.