Editorial StaffKey Points
- The ongoing market correction hasn’t been kind to growth stocks.
- GoodRx is expanding rapidly thanks to a business model that helps all of its stakeholders win.
- Innovative Industrial is going to keep growing its revenue and dividend regardless of its share price.
If an investor wants a well-balanced portfolio, they’ll need to hold a couple of growth stocks that’ll appreciate in value reliably for years on end. The trouble is, companies known for growing quickly tend to trade at a premium, so it’s typically hard to get a bargain under normal conditions.
Both of the stocks I’ll discuss today have had a punishing 12 months, and the recent market correction hasn’t done them any favors. But nothing has changed about the quality of their business models or their ability to successfully execute. So, if anyone is looking for growth at a bargain, they should consider buying them. Let’s explore why these companies are likely to bounce back fast.
1. GoodRx
GoodRx (NASDAQ:GDRX) helps consumers cut down on their prescription costs by finding coupons for the lowest local prices for their medicines and negotiating with manufacturers, pharmacies, and other providers on their behalf. Then, when pharmacy-benefit managers take their administrative fee from the pharmacy once the prescription is filled, GoodRx pockets a portion of it. Consumers can also subscribe for a monthly fee to get access to even more discounts. Between subscription income and fees, GoodRx generated $685.7 million in trailing-12-month revenue, and it’s just getting started.
The magic of this company’s business model is that all of the incentives align perfectly. Patients can afford medications more easily, thereby helping them to experience better health. As a result, manufacturers lose fewer potential sales to price sensitivity among consumers. And healthcare providers don’t need to worry about their patients having worse health outcomes from putting off spending on expensive but critical drugs.
While it isn’t profitable yet, its quarterly revenue has increased by 72.3% since January 2020. More importantly, the number of monthly active consumers using its service has increased by 31% year over year, reaching more than 6.4 million people as of 2021’s third quarter. And its quarterly adjusted earnings before interest, taxation, depreciation, and amortization (EBITDA) have grown by 16%, reaching $61.8 million.
As long as people need to spend less on their medications, the business will keep growing. If GoodRx can keep onboarding more consumers every year, it’ll increase its economies of scale when it comes to negotiating with drug manufacturers and pharmacy-benefit managers, and that’ll likely support a higher profit margin and more earnings accordingly.
Therefore, it’s definitely worth picking up a few shares while it’s in a downtrend with the rest of the market if an investor’s looking for a stock that has the potential to multiply in value.
2. Innovative Industrial Properties
Much like GoodRx, Innovative Industrial Properties (NYSE:IIPR) has a highly repeatable business model, but it isn’t in healthcare. Instead, Innovative Industrial is in the marijuana industry where it operates as both a landlord and a financial institution.
Innovative Industrials’ business starts when a cannabis company needs to raise capital but can’t do so because traditional financial institutions are reluctant to lend to them as a result of cannabis prohibition. In short, the company offers to buy out a business’ cannabis cultivation space, contingent on the owner leasing their former property immediately thereafter. That trade is mutually beneficial as the business gets the cash they need to grow, and Innovative Industrial gets a new rent-paying tenant as well as some property.
And it’s also quite profitable. Over the last three years, the company’s quarterly net income has grown by 726.5%, and its dividend has grown by 233.3%. What’s more, the weighted average lease length for its tenants is 16.7 years, so its base of revenue is remarkably safe. And all of the above bodes very well for new shareholders.
Given that Innovative Industrial has more than $127 million in cash in the bank and $182.7 million in trailing-12-month revenue, it also has plenty of resources to keep buying out more space to continue growing.
The only issue is, over the last six months, the total return of its shares has dropped by nearly 12%. Part of that is a result of the market getting gloomier toward marijuana stocks in general, and the recent correction certainly hasn’t helped. On the bright side, the dip has driven Innovative Industrials’ dividend yield up to 3%, which should sweeten the pot for new investors.
Source: Motley Fool
