5 Stocks: Compounders Built to Beat the Market

One of the best ways to beat the market over the long term is to own companies that compound their revenue growth at 15, 20, 30% per year over a long period of time. And so we have some phenomenal companies that are actually trading for pretty reasonable multiples here today. We're going to go through five of those stocks with John Quas. John, I'm just going to go through those real quick. Uber, Wingstop, Zeta Global, C Limited, and Spotify. So we're going to make our argument for each one of those. I'm going to start things off with Uber. Is Uber a stock that you own? It's not a stock that I own and I'm not 100% sure why because the growth is there and the valuation does look attractive, but tell us what is up with Uber. >> Well, the good news for you is the stock continues to fall. This is one of my larger holdings. Uh, so I've obviously liked the company for a long time. I think the autonomy strategy is is going to work out for them, but the real story that I think investors from a compounding basis need to understand is that their bookings compound is comp compounding year-over-year. 22% growth. They just reported a couple of days ago their second quarter 2026 results. The revenue side didn't look all that impressive. 12% or 11% depending on your whether you're looking at the constant currency numbers or not. But that's actually because of some strange accounting things that happened in the UK. That was about an 8% impact on the revenue growth overall. But what you really want to look at is those bookings. That is how much how many dollars are going through the ecosystem. How many dollars do you spend on a ride or ordering food? It doesn't account for, you know, how much goes to a restaurant or or a driver, for example. That's all that kind of accounting mumbo jumbo that happens underneath. That's why the revenue numbers can be a little bit confusing, but that's compounding. And then the other piece that this ends up with is as they've been able to improve their margins and their take rate, operating income, their net income, their free cash flow are also compounding. So you look at the future. I don't see why this company can't continue to compound their revenue growth 20% for the next 5 10 20 years. >> Well, it is the ubiquitous name in this space uh when it comes to delivery, when it comes to freight, even when it comes to ride sharing. So it does make sense. It is impressive. If I crawl inside my own head here and ask why I didn't own this 5 years ago, I think I would say that I was I was concerned that as the biggest player, growth would be challenged. I kind of like the underdog a little bit more in my investing style, but Uber it hasn't been a headwind for it to continue to grow at this high rate even being the biggest name in the space because the space continues to grow. >> Yeah. And just to bring that comparison in, so Lyft is going to be the be best comparison at least for rides in the US. Uber is growing faster. They're growing those bookings faster than they are for Lyft. The other thing I want to just touch on because you may have questions about what's going on with their autonomous vehicle strategy, right? That's the disruption story is that Whimo is going to eat their lunch. They said that they're going to have 15 different cities operating autonomous vehicles on the Uber network by the end of 2026. It's I believe it was over 30 by 2028 is the plan. This is an aggregator. That's the the strategic concept that you need to understand is like how many people are choosing to open the Uber app when they're looking for a ride, when they're looking for food. That's what really gives them power in the market. And then the supply follows along. The supply is following who has that demand. I think that's going to be the case in autonomous vehicles. There are dozens of companies who are trying to get autonomous vehicles on the roads, pull out safety drivers. Whimo gets the most attention, but over the next 5 to 10 years, there's going to be a dozen companies. Not each one of them is going to have their own app the way that Whimo does. That gives Uber the chance to be that demand source. And so, I think that's you look at you look at rides in the future, it's not going to be, ah, you know what, I got to wait five minutes for this ride and it costs 20 or $30. It's going to be I can have a ride here in a minute. It costs less than owning a vehicle. You know, the target is always a dollar per mile. That would be phenomenal. I think that's going to just massively increase supply of autonomous vehicles. And I think Uber is going to be that main demand source. All right. The one you wanted to bring to the table here is Wingstop eating at Wingstop. This is one of my family favorites, but why should why should it be a favorite for investors? Well, I mean, I think we're sticking on a theme here so far of stocks that are down in way or excuse me, Wingstop stock down about 66% over the last year as of this taping. And really, I mean, we could address the monkey in the room here, and that is that same store sales are declining. And that is a rarity for this business. This company has built its brand on just this consistent and oftentimes very remarkable same store sales growth. As more people discover the Wingstop brand, more people discover the food, they find that like your family, they like it and they are willing to spend more money there. And so that has been the general trend this year facing some headwinds and so that is why the stock is down. However, I I believe that investors should really think about this company based on its historical merits and a one year or a few quarters that doesn't really negate the fact that this company has demonstrated that it has the capacity to grow its sales over the long term. And more than that, this is a primarily franchised business. And I think that that is really key here. What matters is the health and the appetite of the franchises. Do they want to open up new locations and are they in a financially lucrative position in order to do so? The answer to both of those things is yes. And so lot of great growth plans on the board long-term still. The company has about 3,000 locations worldwide. Believes it can get to over 10,000. And right now it just under 2 million in sales per location annually. It believes it can get that to 3 million over the long term. You combine those two things together, say tripling of the store count, increasing the average unit volumes by 50%. That is a 700 increase in revenue right there over the long term. So that is really incredible growth. >> Yeah. And they've demonstrated the ability to do that. Their compound annual growth rate over the past decade is 21%. So this is the thing that I always find interesting when you're looking at compounding companies is that grow and know how to grow typically continue to grow. If you've ever worked at a corporation that is, you know, a growth company, you just there's just something about the culture that that's just what you do. Whereas, if you're a company that's stagnating, you're just you're focused on that, you know, that pinching pennies here and there and, you know, not necessarily innovating quite as much. The other thing that's interesting in the restaurant space and Wing is a lot of restaurants lose focus on what they are. And what I've always found so impressive with Wingstop is it's so simple. the the box that they build out is is so simple, so repeatable. Uh, as a customer, you know what you're getting. That means that they can actually have lower prices because you don't have as much inventory. You don't have as, you know, as much overhead to be able to carry a whole bunch of different stuff. So, it just makes the business easier to run, uh, easier to wrap your head around if you're one of those franchises, if you're operating it, if you're working in one of these restaurants. And as a customer, I think that's a huge win. That should be a tailwind for them long term. >> Yeah, you you point out the simplicity of the menu, of the business model. That really is the key component here. You can run these stores with two or three people in the back and make it work. And that's that is really really important. Another thing you look at here, trading now at 28 times forward earnings. This is an asset light business model. This is really getting to be attractive. There's even a dividend in play here. And I know it's only a 1% yield, but this is a company that is only paying out uh something like 25% of its earnings as a dividend asset light as I mentioned. So it has the capacity to grow its dividend substantially over the next 5 to 10 years. So I think that is something that is not inconsequential. All right, let's talk about the next app that we have. Zeta Global. So this is going to be more of a technology company. If you're not familiar with them, what they're doing is helping typically big companies, so kind of Fortune 100 companies is typically what they have historically targeted. They're also moving into agencies and maybe do moving down market a little bit, but they're not going to create their creative. So, they're going to take in the the creative that those companies have, say, let's say a uh digital ad for a new shoe if you're Nike or something like that, and they're going to say, "Where should we put this ad? where should we spend those dollars so that we get a return on investment and a rorowass a return on advertising spend that is they're they're kind of the platform for that. So a competitor here would be a company like the trade desk. Uh so it's sort of similar markets there. They've had just phenomenal growth and this is still a relatively small company just a a few billion dollars in market cap. First quarter revenue growth was 50% and the second quarter was 43 and a.5%. So phenomenal growth shows that they're getting more adoption from their customers. Their kind of high-end customer number continues to grow. It's still relatively small. And then the interesting thing recently is they've moved into more what they call business intelligence. So if you're using artificial intelligence, and this is kind of an old school AI company. They were built on AI before it became really popular for for people like you and me. But if you're ingesting all of that information and then processing it and saying, "Okay, here's where you can be more effective with your marketing spend, you can maybe do other things to say, here's where you could be more effective with your inventory planning or with your production or with uh you know, how you're running your manufacturing plant." There's other ways that you can be more effective. So the recent partnership with Palunteer, which is another company that's going to be kind of locked into into companies and and pulling in that data, helping them operate more efficiently, that's an area where they're kind of an application on top of Palunteer. So I think a lot of growth runway for Zeta Global and they have demonstrated that over a long period of time. Over the past uh 5 years, they have a 28% compound annual growth rate. So I think that growth just continues to compound. >> I'll readily admit that Zeta Global is not a company that I know well. However, I will just highlight this. In this market right now, AI is a incredibly disruptive force for this kind of a business. And I think that you're seeing that with some companies, the growth rate as AI accelerates, their growth rates are decelerating. And I think that it's meaningful then to contrast that with a company such as Zeta that is saying, "Hey, we're still putting up this incredible growth. So, this is not a disruptive factor for us. This is a uh propulsion factor for us and and I think that that is really key in differentiating between the winners and the losers in the space going forward. >> Yeah. And one of the tailwinds you could think about is a company like Meta. So if they're using AI to be more effective with their advertising, well Meta is one of the platforms that Zeta is helping get those ads on. So they're they're not, you know, directly going to be, you know, onetoone with Meta's growth, but they are going to be sort of sort of indirect and be able to have ride tailwinds from that. So they're, you know, there is another case where I also like this application layer. So I think there's a lot going on with, you know, the hyperscalers and the buildout and then the models and how competitive that's going to be. But there are going to be these application layers where something new is built either by artificial intelligence or or using artificial intelligence and the information that you can have with a company like Zeta Global and then that new application becomes the kind of things that companies get value from. So I think they're building one of these kind of platforms and Athena is their kind of their operating system if you will that marketers can just talk to at this point and say hey here's what I want to do. That's not something somebody's going to vibe coat and they've got proprietary data. So, a lot of things to like about Zeta Global. If this is not a stock that you have looked at in the past, it's a compounder historically and I think it will be for a long time in the future. All right, stock number four, C Limited. What do you like about C Limited today? Well, if we had taped this on a different day, I might have gone with Marcato Libre here, a company that I absolutely love, but different reporting times. And so, I actually went with C Limited here. And this is the mostly in Southeast Asia marketplace. Well, it's actually a three-part business. It has its shopppee platform, uh, C C++ on the name, maybe for its e-commerce platform. It also has money, uh, maybe C minus on that name for fintech. And it also has a gain, which is video games. But this three-headed monster of a stock right now is just putting up incredible growth numbers. Um, 47% revenue growth in the most recent quarter and experiencing double-digit growth in all of its business segments. I think that's really remarkable. The other thing that I will point out here right at the get-go is that this company has faced incredible uh just skepticism from investors in the market because of all of these things popping up. And so there was concern that Tik Tok was going to eat its lunch with the way that Tik Tok was integrating more e-commerce into its platform. There was changes in the rules in Indonesia, one of its key marketplaces. And just all of these things happening constantly to the business. And what we did see with C Limited is that it never experienced negative growth throughout all of the the adversity over the last 5 years that it's faced growth maintaining that positive trajectory throughout and even accelerating here recently. >> Wild stats for you. C Limited stock over the past 5 years is down 63%. Uh but over that period of time revenue has compounded at 20%, the the crazy one is their 10-year compound annual growth rate is 54%. So this is a company we talked earlier about companies that just know how to grow. They're in the right markets. They're expanding into the right areas. C Limited definitely seems to be doing that. >> Yeah, the company definitely knows how to do this. One of the things that did earn my respect was when it was able to switch on the profitability during a time that it needed to do that. It showed that it could flip that switch. It was unprofitable for a long time and then management deciding to hey we're going to actually make some profits here while we're facing some some hardships did that maintain the growth and then started dwindling down the profitability again to reinvest in that growth and it's accelerating again. So management really has a strong handle on the business here. I think that counts for something. And trading at under 30 times forward earnings at that incredible compound annual growth rate that you talked about, it demonstrates that it knows how to win not only in its market, but also in foreign markets such as Brazil where it's seeing a incredible uptick. And then adding new businesses as well, advertising growing over 80% the most recent quarter. That's going to be a new driver for them. So, a lot to like with C Limited. >> I struggle with companies that I've never actually used their products, which is one of the reasons that uh C Limited so hard for me. and then also Marcato Marcato Libre as well. But uh may have to take a research trip to be able to use some of their products. All right, number five that we wanted to talk about in this on Spotify. Spotify is one of those companies that we all know uh very consistent business. It's not really all that sexy of a business. It's not doesn't have the high growth rate that we've talked about with a lot of these companies over the past five years. Compound annual growth rate is 13%. Management said in their recent conference call that they think they can grow in that mid teens range. So let's say 13 to 15 or 16% through at least 2030. So through the end of the decade. I think that's probably right. And I think that's probably right for the foreseeable future, too. And the great thing about Spotify, this is a compounder, but it's not it's not one of these companies that's growing 20 or 30%. Okay? So that's where you're typically going to be at the market. But this is just one of those steady companies that I think about what is a business that's going to exist and going to be one of those musthaves 10 years from now, 20 years from now. The subscription you pay for music, I think, is just going to be one of those that everybody continues to pay for. So, you're going to expand the number of subscribers. You're going to slowly expand the price for those subscribers. And then there's a lot of optionality for them. They have not, you know, admittedly they have not executed well on advertising. they have not been able to monetize podcast particularly well even though this is a very popular podcast player uh video not really clear how they're going to monetize that but even just that core just that core business with the user growth with price growth I think they're going to be able to compound in double digits and then you got optionality for even higher growth than that so sometimes slow and steady you know 13 14 15% compounding is enough to be a great winner as an investor >> yeah that's enough to get it done it truly is uh for from an investment point of view that can definitely lift your investment to market beating returns depending on the the price for sure. But you know one thing I did want to say is can you imagine not having Spotify like that that's one of those businesses that there there is incredible diversity of choice out there in products and platforms and yet Spotify continues to be that go-to for me as well. Even as a free user, I I I can't imagine not having Spotify if I woke up tomorrow, maybe passing that so-called snap test that David Gardner talks about it. If you snapped your fingers and it went away, would you miss it tomorrow? And I would miss Spotify. I think that's totally right. And we were Apple Music users for a long time. They just clearly they've got other priorities, right? If you make a list of what's most important to Apple, the Apple Music app is what number 50 on their list of priorities, whereas the app is what Spotify does. I think that's one thing that we're going to see over the next decade or so is the companies that really focus on one thing and do that one thing better than anybody else are just going to have those small advantages over a lot of their competitors. You also hear a lot about YouTube coming in and, you know, taking business from them in music. I I just don't see that. You don't see that in the numbers. You also don't see that. I just don't find that to be all that compelling as a user to be able to, you know, use a different app. Uh they have a great kids app, which is phenomenal as a parent because I can control what music actually goes into that app. Uh make sure my kids are listening to appropriate music, all that kind of stuff. So, all this just small advantages that they have over the market. And when it's just, you know, for a family, it's what what is it? 20 $25 a month. I don't even know how much we pay cuz I'm just happy to pay it every month. Uh cuz the kids know when you turn on Spotify, they've got their playlist right there. That's going to make it extremely sticky business. Happy to have that compounding in my portfolio at 15% or so for the next decade. So the five stocks we talked about today, Uber, Wingtock, Zeta Global, C Limited, and Spotify. Let us know which one of those are your favorite. Don't forget to subscribe here on YouTube to the Monthly Fools channel. Thanks for watching everybody. See you here next time. Heat. Heat.