Quality compounders are well-oiled machines. Their competitive advantages allow them to make profits consistently and reinvest them into projects that generate even more profits, creating a virtuous cycle of returns.
Companies such as these set the gold standard in public market investing. That said, here are three quality compounders that could amplify your portfolio’s returns.
Toast (TOST)
Market Cap: $24.61 billion
Founded by three MIT engineers at a local Cambridge bar, Toast (NYSE: TOST) provides integrated point-of-sale (POS) hardware, software, and payments solutions for restaurants.
Why Are We Positive On TOST?
- ARR trends over the last year show it’s maintaining a steady flow of long-term contracts that contribute positively to its revenue predictability
- Forecasted revenue growth of 21% for the next 12 months indicates its momentum over the last three years is sustainable
- Operating margin improvement of 8.3 percentage points over the last year demonstrates its ability to scale efficiently
Toast’s stock price of $42.70 implies a valuation ratio of 4.1x forward price-to-sales. Is now a good time to buy? Find out in our full research report, it’s free.
DoorDash (DASH)
Market Cap: $93.47 billion
Founded by Stanford students with the intent to build “the local, on-demand FedEx", DoorDash (NYSE: DASH) operates an on-demand food delivery platform.
Why Will DASH Beat the Market?
- Orders have grown by 21% annually, allowing for more profitable cross-selling opportunities if it can build complementary products and features
- Incremental sales over the last three years have been highly profitable as its earnings per share increased by 105% annually, topping its revenue gains
- Free cash flow margin expanded by 11.3 percentage points over the last few years, providing additional flexibility for investments and share buybacks/dividends
At $220.80 per share, DoorDash trades at 33.1x forward EV/EBITDA. Is now the time to initiate a position? See for yourself in our full research report, it’s free.
Lululemon (LULU)
Market Cap: $27.4 billion
Originally serving yogis and hockey players, Lululemon (NASDAQ: LULU) is a designer, distributor, and retailer of athletic apparel for men and women.
Why Will LULU Outperform?
- Same-store sales growth averaged 6.6% over the past two years, showing it’s bringing new and repeat shoppers into its stores
- Collection of products is difficult to replicate at scale and results in a best-in-class gross margin of 58.9%
- Robust free cash flow margin of 14.8% gives it many options for capital deployment
Lululemon is trading at $229 per share, or 15.1x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.
While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market by checking out our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today
