Beating the SPDR S&P 500 ETF (NYSE: SPY) is no easy feat.
After all, the ETF generated a 93% return over a period of five years between 2018 and 2023.
In comparison, the latest Singapore Savings Bonds, with an average interest of 3.3%, will only get you 18% in gains over the same period.
Hence, it speaks volumes when Arista Networks, Inc. (NYSE: ANET), Intuitive Surgical, Inc. (NASDAQ: ISRG) and Tractor Supply Company (NASDAQ: TSCO) outperformed the ETF over this period.
Charts: Yahoo Finance
An industry leader in data-driven, client to cloud networking
Founded in 2008 and listed in 2014, Arista Networks has more than 8,000 cloud customers worldwide.
Among them, its two biggest customers are Meta Platforms (NASDAQ: META) and Microsoft Corporation (NASDAQ: MSFT).
An innovative company, Arista’s network solutions have taken the fight to the incumbent, Cisco Systems (NASDAQ: CSCO).
Arista has continued gaining market share over the years.
This move has translated into impressive growth for both its top and bottom lines.
Revenue grew from US$2.15 billion in 2018 to US$5.86 billion in 2023. That is a compounded annual growth rate (CAGR) of 22.2%.
Earning per share (EPS) grew at an even more astonishing CAGR of 45.4% over the same period!
The company’s growth has not stopped.
For 2024’s first quarter (1Q 2024), revenue grew by 16.3% year-on-year (YOY) to US$1.57 billion, and EPS jumped by a whopping 39.2% to US$1.99.
Riding on the tailwind of Artificial Intelligence (AI), Arista has a long runway to grow into their total addressable market of US$60 billion.
The pioneer in robotic-assisted surgery
Intuitive Surgical is a pioneer in robotic-assisted, minimally invasive surgery.
Over the past three decades, its innovative systems have helped surgeons to perform surgery by extending the capabilities of their eyes and hands.
This solution has resulted in improved surgical outcomes and helped patients to recover more quickly compared to open surgery.
With more hospitals and surgeons coming on board, Intuitive grew both its revenue and income over the years.
Between 2018 and 2023, Intuitive Surgical grew its revenue and EPS at a CAGR of 13.9% and 9.7% respectively.
That’s despite the headwinds caused by the COVID-19 pandemic.
There is growth aplenty going forward.
For 1Q 2024, Intuitive reported a 11% YOY increase in revenue to US$1.89 billion and EPS jumped by 51% to $1.51.
The company’s next generation robotic system, da Vinci 5, has received clearance from the US Food and Drug Administration (FDA) in March, hence, we can expect further growth from the company in the coming years.
The largest rural lifestyle retailer in the US
Living in Singapore, it might be hard to imagine that a retailer targeting rural lifestyle can grow its revenue by a CAGR of 13% for the five years between 2018 and 2023.
Not only did Tractor Supply achieve that, its EPS compounded at an average rate of 18.5% over the same period!
The icing on the cake is that its dividend has grown by more than three times from US$1.20 in 2018 to US$4.12 in 2023.
During this period, Tractor Supply has benefitted from its “Life Out Here” strategy as it rode on the trend of more Americans moving to the suburbs.
In 2021, the company relaunched its Neighbor Club’s loyalty programme with much success. Members now account for three-quarters of sales in its latest quarter.
For 1Q 2024, Tractor Supply reported a 2.9% YOY increase in revenue to US$3.39 billion while EPS grew by 10.9% to $1.83.
Moving ahead, the company is looking to open about 80 new Tractor Supply stores, its 10th distribution centre, and another 10 to 15 new Petsense by Tractor Supply stores for this year.
Get Smart: The underlying business matters
As Ben [Graham] said: “In the short run, the market is a voting machine but in the long run it is a weighing machine.”
– Warren Buffet, 1987 letter to Berkshire Hathaway shareholders
The strong returns by Arista Network, Intuitive Surgical and Tractor Supply are undergirded by the growth of their businesses.
Such returns are sustainable, in my view.
As long as they can continue to grow their businesses, they will be priced higher in the future.
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Disclosure: Chan Kin Chuah owns shares of Apple, Arista Networks, Intuitive Surgical, Microsoft and Tractor Supply.
