Investing in growth stocks offers the potential for significant capital appreciation, thanks to strong revenue and earnings growth, industry innovation, and market expansion. Growth stocks, despite their higher volatility and risk, are a crucial part of a diversified investment strategy, particularly for investors with a longer time horizon and a higher risk tolerance.
Here are three such growth stocks that have tremendous potential in the long run.
#1. Applovin Stock
AppLovin Corporation (APP) has gained attention for its dominant market position in mobile app development and its robust advertising technology platform. The company operates in two segments: software platforms and apps. The software platform gives developers the tools they need to market and monetize their apps, whereas the apps segment owns and manages a portfolio of mobile games.
APP stock has surged an impressive 298.6% YTD, while the S&P 500 Index ($SPX) is up 22.7%.
In the second quarter, the company's total revenue increased 48% year on year to $1.06 billion. Its software platform increased by 91% to $678 million as AXON technology improved. Apps revenue increased by 5% over the previous year's quarter.
While the company's earnings have been volatile due to its expansion efforts, analysts expect earnings to stabilize as AppLovin continues to optimize its AdTech platform and expand its game portfolio. In Q2, a net profit of $236 million was reported, much improved from a net loss of $4.5 million in the prior-year quarter.
Analysts predict that Applovin's revenue and earnings will rise by 35.1% and 249.9%, respectively, in 2024, with another 14.6% increase in revenue and 29.3% in earnings growth estimated for 2025.
AppLovin stock is a promising growth opportunity in the mobile app ecosystem. Furthermore, the company could broaden its App Discovery and AdTech platforms to target non-gaming apps, while capitalizing on key industry trends such as AI-powered advertising solutions.
Overall, Wall Street rates APP stock a “moderate buy.” Of the 17 analysts covering APP stock, 11 have rated it a “strong buy,” five suggest a "hold,” and one rates it a “strong sell.”
#2. Emerson Electric Stock
With a market cap of $63.1 billion, Emerson Electric (EMR) is a global industrial conglomerate that offers a wide range of automation, process management, and energy solutions. Compared to the broader market, the stock is up a modest 13.5% year to date.
The company operates in two major segments: Automation Solutions, which provides automation technologies, software, and engineering services to industries such as oil and gas, chemicals, and power generation; and Commercial & Residential Solutions, which offers products and technologies in heating, ventilation, air conditioning (HVAC) and refrigeration, as well as professional contractor tools.
In the fiscal third quarter, revenue increased by 11% to $3.9 million, while adjusted earnings increased by 11% to $1.29 per share.
Emerson is an established industry player, but the company is still expanding, particularly in the areas of automation and digital transformation. As more industries prioritize efficiency and digitalization, this segment will likely remain a key growth driver.
Furthermore, Emerson is both a growth and dividend stock. It pays a dividend yield of 1.9%, compared to the industry average of 2.4%. Its forward payout ratio of 35.4% is also sustainable, in light of its earnings growth. Emerson has a long history of increasing its dividend - 67 years, to be exact, earning its reputation as a "Dividend King." This status has increased its appeal, particularly to those looking for a consistent, reliable income.
Analysts expect Emerson’s earnings to increase by 23.2% in 2024, followed by another 8.3% growth in 2025.
On Wall Street, Emerson stock is a “moderate buy.” Out of the 20 analysts that cover the stock, 14 rate it a “strong buy,” one recommends a “moderate buy,” four say it’s a “hold,” and one rates it a “moderate sell.”
The average target price of $126.80 suggests that EMR stock can rally 14.9% over the next 12 months. Further, the high target price of $139 implies a stock gain of nearly 26% over current levels.
With a balanced mix of stability, growth potential, and dividends, Emerson stock appeals to both conservative and growth-oriented investors.
#3. Snowflake Stock
Snowflake (SNOW) is a cloud-based data warehouse and analytics company. Its business model is based on providing a cloud-native platform that enables businesses to store and analyze large amounts of data across multiple cloud services.
SNOW stock has dipped 40% YTD, compared to the tech-heavy Nasdaq Composite's ($NASX) 23.5% gain.
Snowflake's platform is built on a usage-based pricing model that responds to customer demand for adaptable, scalable solutions. As companies' data requirements grow, they typically use more of Snowflake's services, resulting in higher revenues.
In the second quarter of fiscal 2025, product revenue, which accounts for the majority of revenue, increased by 30% year over year to $829.3 million. The net retention rate for the quarter was 127%, demonstrating how well the company retains customers.
Furthermore, its remaining performance obligations, or RPO (contracted revenue to be recognized in the future), rose 48% to $5.2 billion.
As a growing company, Snowflake's continues to invest heavily in expanding its operations, hiring, and entering new markets. The company has not yet achieved consistent profitability. Following a profit in the first quarter, Snowflake reported a net loss of $0.95 per share in the second quarter.
For fiscal 2025, analysts predict Snowflake’s revenue could increase by 25.8% to $3.5 billion, while earnings might dip by 38.7% to $0.60 per share. Furthermore, revenue and earnings are expected to increase by 23.4% and 54.5%, respectively, in fiscal 2026.
Overall, Wall Street rates SNOW stock a “moderate buy.” Of the 41 analysts covering SNOW stock, 25 have rated it a “strong buy,” three rate it a “moderate buy,” 11 rate it a "hold,” and two suggest a “strong sell.”
Based on the mean price target of $170.25, the stock can climb 42.4% over current levels. Plus, its high target price of $220 suggests the stock could climb 84% over the next 12 months.
