You don’t need a lot of money to get started on the stock market – an opening investment of just $ 500 could help set the stage for life-changing returns. Let’s explore the reasons why Duolingo (NASDAQ: DUOL) and Dream Seeker Homes (NASDAQ: DFH) could be great long-term bets due to their rapid growth rates and relatively small market caps.
Duolingo operates an online language learning app in the United States and China that offers courses in 40 different languages. Positioned in a fast growing industry and benefiting from an economic divide, this mid-cap company has what it takes to generate multi-bagger returns as its business grows.
Brandessence Market Research analysts expect the global language learning industry to grow at a compound annual growth rate of 18.7% to $ 173 billion by 2027 as globalization spurs Requirement. The advantage of Duolingo comes from its freemium strategy, which allows it to collect data from users (to improve the experience) and to rely on word of mouth to promote customer acquisition rather than marketing.
First-quarter revenue soared 97% to $ 55.4 million, and paid subscribers grew 64% to 1.8 million, representing just under 5% of its 40 million active users monthly. Duolingo has a huge opportunity to convert more unpaid users to paid users or monetize them through ads (which accounted for 17% of sales in 2020). The business can also drive growth through paid services like its $ 49 English Proficiency Test.
With a market cap of $ 4.65 billion, Duolingo is trading 29 times its 2020 sales of $ 162 million. It’s an expensive assessment, but it makes more sense when you consider the rate of growth of the business. That said, investors may want to wait a few more quarters of data before taking a position in the stock.
2. Homes of Dream Seekers
Dream Finders Homes is a homebuilding and mortgage company that went public in January. Stocks have seen significant volatility since the IPO, but it’s a great choice for investors due to its cheap valuation and unique, lightweight business model.
Dream Finders does not hold any land on its long term balance sheet. Instead, he buys contracts on the land without actually owning the property until he’s ready to build. This strategy can reduce the company’s exposure to macroeconomic volatility and potentially stimulate growth by freeing up capital for other activities (such as acquisitions). Second-quarter revenue increased 83% year-over-year to $ 365 million, and pre-tax profit climbed 193% to $ 37 million.
Dream Finders continues its momentum with a series of acquisitions. In February, she incorporated Century Homes Florida. This transaction follows the acquisition in 2020 of H&H Homes, which operates in the Carolinas. The company can create value by synergizing its lean economic models with these new activities.
With a futures price / earnings multiple of just 12, Dream Finders is inexpensive compared to S&P 500 average of 31 – especially considering its rapid growth rate. But the company commands a premium over other major home builders like DR Horton and Home Ko, which trade for eight and six times future earnings, respectively.
Small size + rapid growth = epic potential
Everyone wants to bet on a winning stock when it is cheap and unknown. Duolingo and Dream Finders both went public this year – and their modest market caps and skyrocketing growth rates are testament to their multi-bagging potential. These companies also have competitive advantages in their niches, which is the icing on the cake for potential investors.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.