Buying great companies and holding them for the long term can help you to build immense wealth.
The key is to select businesses with the right characteristics.
These attributes include having a strong franchise, dominant market share, or a competitive edge that competitors find difficult to replicate.
Filtering out such attractive businesses is just the first step.
Having the patience to hold on to them is the other key ingredient to multiplying your wealth.
Here are three growth stocks you can include in your investment watchlist that have the potential to greatly compound your wealth.
Rollins Inc (NYSE: ROL)
Rollins provides pest control services and protection against a variety of vermin and insects such as rats, cockroaches and termites.
The company, which was started in 1893, serves more than two million customers in more than 700 locations.
Residential customers make up 70% of Rollins’ revenue while commercial customers make up the remainder.
Over 80% of its revenues are recurring.
Rollins has enjoyed 23 consecutive years of rising revenue and has also grown its dividend at a compound annual growth rate (CAGR) of more than 18% over 17 consecutive years.
Revenue for the first nine months of 2021 (9M2021) rose 12.2% year on year to US$1.8 billion.
Net profit surged by 44% year on year to US$285.3 million.
Rollins has enjoyed five consecutive years of rising free cash flow from 2015 to 2020.
The company has been aggressive in acquisitions: it made a total of 31 acquisitions last year in the US, UK, Canada, Australia, and Singapore.
Investors can look forward to more growth as Rollins sits comfortably in an US$18 billion industry that is expanding at a pace of 4% to 5% annually.
Autodesk Inc (NASDAQ: ADSK)
Autodesk is a global leader in software for industries such as architecture, engineering, construction, design, and manufacturing.
Founded in 1982, the company hires around 11,500 people worldwide and sells a range of software products such as AutoCAD, Autodesk Construction Cloud, and Fusion 360.
For its fiscal 2022 first half (1H2022) ended 31 July 2021, Autodesk reported a 13.9% year on year increase in total revenue to US$2 billion.
Net profit soared by 64.7% year on year to US$271.2 million.
The company also generated US$502 million of free cash flow over the same period, higher than the US$371.8 million a year ago.
During its recent Investor Day, President and CEO Andrew Anagnost presented the company’s goals for the fiscal year 2023 (FY2023).
A key initiative is to drive adoption of Building Information Modelling (BIM) which converts 2D to 3D.
Another initiative is to integrate its construction cloud software across the entire build process to streamline it and enable better efficiency.
This digital transformation not only expands the company’s total addressable market to US$78 billion in FY2026 from the current US$62 billion but also helps its customers to realise their ESG goals.
DexCom Inc (NASDAQ: DXCM)
DexCom is a leader in diabetes care technology and empowers people to take control of their medical condition using continuous glucose monitoring (CGM) systems.
The goal of the company is to simplify and improve diabetes management.
DexCom reported a pleasing set of financial numbers for 9M2021.
Revenue increased by 28.9% year on year to US$1.75 billion while operating profit jumped by 35.7% year on year to US$265.2 million.
Net profit rose by 25.8% year on year to US$174.1 million.
The company had just received clearance from the US Food and Drug Administration (FDA) for two key software solutions that should boost earnings in the future.
The first is a real-time application processing interface (API) that allows third-party app developers to integrate CGM data into their digital health apps and devices.
The other is an app-in-app module that integrates directly with third party healthcare apps, thereby enabling diabetics to better manage the disease.
In addition, DexCom also completed the acquisition of its distributor in both Australia and New Zealand, allowing for direct sales and eliminating an additional layer of costs for the company.
Globally, the number of diabetes sufferers is expected to rise steadily over the years, from 463 million in 2019 to 700 million by 2045.
This sad statistic means that more people will require CGM to ensure they keep the disease under control.
DexCom plans to expand its presence into new geographies by the second half of 2023, a move that will more than triple its total addressable market.
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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.
