While it can be difficult to know which stocks will explode higher over the next several years, a great place to start is to look at the current megatrends and then find the leading stocks in those areas.
The following are three stocks that are dominating their markets in some of the biggest trends out there right now.
Here’s what you need to know about these three stocks.
Control4 (NASDAQ: CTRL)
You’ve probably heard of a not-so-little trend happening right now, the Internet of Things (IoT). Well, Control4 (NASDAQ: CTRL) is uniquely positioned to profit from this megatrend.
Control4 is a leading provider of networking systems for homes and businesses that offer unified solutions to control just about everything: lights, security, communications, music, among other smart-home devices. And as smart home devices proliferate, Control4 will thrive.
The stock is down more than -40% since its peak in mid-September, which has brought the stock’s valuation back down to earth. This gives investors a great entry point for those looking to get in on the smart home revolution.
Control4’s smart home solutions are professionally installed systems that control between 25 and 125 devices, with a cost ranging from $1,000 to $50,000 – a premium product that is geared towards households generating income over $150,000 annually. Management believes they have only penetrated about 1.5% of this market, which means there’s plenty of room to grow.
The company also has a track record of scooping up innovative businesses in its sector, which has spurred growth and gains in market share. And what’s more, the company has no debt on its balance sheet from these acquisitions.
It is also growing its business by launching certified showrooms to demonstrate to consumers the benefits of having all their devices connected and to drive more effective leads, and is improving its brand awareness among interior designers, architects, and builders by offering C4Yourself Days to help them learn how to work with consumers on connecting their homes.
Control4’s growth depends on the growth of connected devices and the rise of smart homes, but as interest in this area continues to grow, the company could see massive growth.
Analysts’ average 12-month price target for CTRL is $33, indicating the stock has possible upside of 53.42%. DA Davidson recently boosted its price target to $38 – 76.7% higher than Thursday’s closing price.
Axon Enterprise (NASDAQ: AAXN)
Axon (NASDAQ: AAXN) has had a rough go of it lately, and is down -28.6% for the month. But there’s reason to consider this stock.
Technologies are continually evolving, but one thing remains a constant: the need for security. That’s exactly what Axon does, and it is uniquely poised to grow on advances in security technology.
The company is best known as the maker of the Taser conductive electrical weapons, but the company is so much more than that. Axon also makes body cameras, fleet cameras, and Signal Sidearm sensors that sit in the holster and detect when a gun is removed to trigger a recording.
It also runs the biggest cloud-based digital database of police evidence and other data in its Evidence.com platform. All of the footage from the company’s body cameras go directly to Evidence.com, and police stations pay a monthly subscription to store and analyze the footage. And retention is high as it’s difficult for police stations to switch platforms.
In addition to that, Axon is also gearing up to offer Axon Record, a records management system (RMS) that takes the data recorded by body cameras to help streamline the paperwork process for officers. Initially, the basic Axon Record will be offered for free to agencies that purchase the company’s new TASER 7, though there will be add-on functionality that agencies can pay for. While the company won’t see revenue from Axon Record any time soon, offering it for free will drive adoption, which will ensure revenue down the road.
As calls for criminal-justice reform grow louder, the use of body cameras will become more widespread and will likely become mandatory, which will be good for Axon and both its physical products and its software-as-a-service (SaaS) platforms. The company already has new contracts this year with Jacksonville County, Florida, Fort Worth, Texas, Charlotte, North Carolina, Boston, and several other jurisdictions.
What’s exciting about Axon is that it already has a monopoly on non-lethal stun guns. And as police departments store their footage data on Evidence.com and do their paperwork through Axon Record, switching costs will be prohibitively expensive, which means the company will see little competition and stable, recurring revenue for the long haul.
The average price target for AAXN is $64.80, suggesting possible upside of 47% over the next twelve months. Earlier this month, JPMorgan Chase upgraded the stock to Overweight and set their price target at $68 – 54.3% above the current price.
Splunk (NASDAQ: SPLK)
Operational intelligence platform Splunk (NASDAQ: SPLK) announced Q3 earnings today that crushed estimates and marked its 16th straight quarter of beating expectations.
Splunk reported year-over-year revenue growth of 40.4%, license revenue growth of 44.3% compared to the same quarter a year ago, and the company added more than 500 new enterprise customers and expanded relationships with customers including Jabil (NYSE: JBL), Norfolk Southern (NYSE: NSC), and Japanese giant, Softbank (OTC: SFTBT).
In essence, the company turns data into answers, and it produces software for searching, monitoring, and analyzing machine-generated big data in a cloud-based app. Splunk’s products have been put to use in cybersecurity and fraud protections, fleet tracking, website monitoring, and system failure detection.
And the company has an impressively high retention rate with its clients as companies begin to understand the value of big data. It is on-track to reach 20,000 customers by 2020 with revenue expected to hit $2 billion the same year.
“A key value of creating models in Splunk is that users can seamlessly apply them to real-time machine data,” said RBC Capital. “Within our software universe, we would highlight Splunk as a likely winner in the big data category.”
The average twelve-month price target for SPLK is $128.83, indicating possible upside of nearly 27%. Barclays recently boosted its price target for the stock to $136 – nearly 34% higher than the price as of this writing.