Two stocks that could double within three years

Wall Street doesn’t always get it right. Companies with excellent growth prospects can be significantly undervalued, leading to great returns for patient investors. What follows are two stocks that can double your money in just a few years.

1. Opendoor technologies

Opendoor technologies (OPEN 4.00%) disrupts the home buying process. The digital platform takes the friction and hassle out of buying a home, and while it has seen growth in recent years, the stock has fallen after a weak period. housing market. The sell-off is a great buying opportunity ahead of a recovery, where there are huge opportunities. According to Statista, the value of all residential real estate transactions in the US was $2.9 trillion in 2023, but it is expected to rise to almost $3.3 trillion by 2028.

Opendoor generates revenue through the acquisition and resale of homes, in addition to insurance, escrow and brokerage services. This model can generate explosive growth in a strong housing market, but the opposite during weak market conditions. Second quarter revenue fell 24% year over year to $1.5 billion. However, in the same quarter of 2022, revenue increased 254% year over year to $4.2 billion, demonstrating the company’s potential.

Sales are expected to fall again in the third quarter to between $1.2 billion and $1.3 billion, but these figures have been factored into the share price. The stock price-to-sales ratio (P/S). has risen 78% over the past year and has remained stable between 0.25 and 0.40 in recent months. This indicates that investors are pricing in the bottom of the housing cycle and waiting for a recovery.

Yet there are risks. Opendoor is not currently a profitable company, with a net loss over the last twelve months of $398 million. It also has $2.4 billion in debt, offsetting $809 million in cash assets balance. The company needs a recovery in the housing market to strengthen its financial position.

The good news is that after the recent Federal Reserve rate cut, a recovery could be on the way, which could lead to an improvement in mortgage affordability. With a more stable housing market likely not far away, the stock could double in the coming years if the stock returns to a price-to-earnings ratio above 0.50 on top of higher earnings.

2. Dutch Brothers

Dutch Brothers (BRITTLE 0.84%) continues to trade at a reasonable valuation for a fast-growing drinks chain. It started as one coffee shop in the 1990s, but has expanded its menu to include energy drinks, shakes, lemonade, sparkling sodas and more. As the company profitably expands its stores to maintain double-digit sales growth, the stock could potentially double within three years.

Dutch Bros operates more than 900 locations in 18 states. It is expanding well, with 36 new stores opened in the second quarter. Unlike some retail brands, Dutch Bros is performing well this year.

Last quarter, the company reported a 4% year-over-year increase in same-store sales, which measures growth in the number of locations open at least 15 months. Same-shop performance has been inconsistent in recent years due to macroeconomic headwinds. However, it’s worth noting that Dutch Bros’ positive comp sales outperformed the market leader Starbuckswhich reported a decline in sales in its most recent quarter.

Dutch Bros has consistently maintained its sales growth around 30% over the past year, and could maintain growth above 20% for years to come, given that most of the US does not yet have a Dutch Bros. That’s enough growth to double the stock’s value within three years, assuming it continues to trade at the same price-to-earnings ratio.

The stock’s P/S multiple of 2.55 is a discount to Starbucks’ 3.05 and 3.05 Chipotle Mexican Grill‘7.85. It is understandable that Dutch Bros is trading at a lower valuation as it currently operates on very low margins. But the encouraging sign is that these stores are already showing the potential to be highly profitable in the long term. Dutch Bros’ store-level contribution margin was 30% in the second quarter, comparable to Chipotle.

It’s an excellent time to build a position in the stock before Wall Street takes notice of this amazing growth story. The stock has the characteristics of a monster winner.