Most long-term compounders start as high-risk, high-reward stocks under $20. Their low-priced stocks grow into significant values through sustainable long-term growth and returns on invested capital.
Today, many stocks with prices over $1,000 once started as low-priced stocks. For example, NVR (NYSE:NVR) and Booking (NASDAQ:BKNG) have grown their share price into the thousands by delivering consistent growth.
Of course, these stocks also present a higher likelihood of losses. Typically, these are smaller companies with large established competitors. Therefore, they assume a higher risk of failure. Considering this risk, the following companies have competitive advantages due to their brand strength or superior technology.
The following under $20 stocks are worth a punt. Although they are currently low-priced stocks, they have a long runway for growth. Due to their multi-year growth expectations and competitive advantages, these stocks could soar to over $100 per share.
Portillo’s (PTLO)
One of the best sources of multibaggers has been the restaurant industry. Chains such as Chipotle Mexican Grill (NYSE:CMG) have pursued rapid expansion, leading to growing earnings and a parabolic stock. Today, the chain Portillo’s (NASDAQ:PTLO) stands at the cusp of such an opportunity and is one of the top high-risk high-reward stocks under $20 to buy.
Portillo’s is one of the most exciting growth opportunities in the restaurant industry. With only 84 locations in the U.S., primarily in the Chicago area, it has massive room for growth. Its concept, based on Italian beef sandwiches, along with fries, onion rings, hot dogs, and sausages, is thriving.
The restaurant is one of the best operators in the U.S. On February 27, it announced fiscal year 2023 results, growing total revenues by 15.8% to $679.9 million. Also, same-restaurant sales were a highlight, increasing by 5.7%. Moreover, the restaurant achieved a 24.3% restaurant-level adjusted EBITDA margin.
In terms of execution, the company is firing on all cylinders with industry-leading results. In 2023, the company achieved an impressive $9.1 million average unit volume (AUV) across its restaurant locations. For comparison, Chipotle Mexican Grill had slightly over $3 million in AUV in 2023.
Additionally, management is embarking on a growth phase to take this concept nationally. In their recent investor presentation, they outlined a 12% to 15% unit growth plan. This will drive mid-teens revenue growth for the restaurant chain. At only 84 locations as of February 29, Portillos has a massive growth runaway.
Patterson-UTI Energy (PTEN)
Patterson-UTI Energy (NASDAQ:PTEN) is an undervalued oilfield services company.
In 2023, it merged with NexTier Oilfield Solutions bringing in a top-tier completions business. The deal turned the company into a full-fledged drilling and well completions business. As a result, the company has deepened its relationship with shale operators who need its technology.
According to analysts at ATB Capital Markets, PTEN will experience strong free cash flow generation in 2024 and 2025. Notably, they expect the company to grow EBITDA at a compounded annual growth rate of 25%.
In their Q4 2023 earnings call, management reiterated that they expect total capital expenditures to decline in 2024. This will allow the company to return at least 50% of free cash flow to investors. In line with this plan, the board authorized a $1 billion share repurchase last month. Besides, based on the latest investor presentation, the company will return at least $400 million in buybacks and dividends in 2024.
With a stable macro-outlook, Patterson-UTI Energy anticipates stable U.S. drilling activity. Also, management expects to capture $100 million in incremental annualized synergies from the merger. At 11 times forward earnings, the stock is a bargain.
Fastly (FSLY)
Fastly (NYSE:FSLY) turnaround is finally taking shape after a growth slowdown caused by outages it experienced. Since joining in September 2022, CEO Todd Nightingale has returned the edge cloud network provider to growth and improved gross margins.
Also, the company has made significant progress since revenue growth troughed in the March 2023 quarter. In Q4 2023, it reported an 8% sequential growth and 15.5% year-over-year (YOY) growth. On the margin front, non-GAAP margins have improved from 55.6% in Q1 2023 to 59.2% in Q4 2023.
Management has highlighted optimism about further improvements in profitability. They expect non-GAAP margins to exceed 60% in 2024 as well as revenue growth of 17% to 21%. It is building one unified platform offering content delivery, security, compute, storage and observability services.
Going forward, management expects security to be a growth driver. Fastly has a best-in-class DDoS prevention and mitigation service. Customers rely on the service to prevent some of the most sophisticated attacks. Its Next-Gen WAF, a web application firewall, assists customers in identifying and preventing application and server attacks.
Point solutions cannot compete in the edge computing space. Customers want holistic platforms with content delivery, security, compute, storage and observability features. According to Forrester Wave, Fastly is a leader in Edge Development Platforms and is well-positioned in these areas.
On the date of publication, Charles Munyi did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
