According to Warren Buffett, it’s far better to pay a fair price for shares in a wonderful business than the other way around. And that’s very much the case when it comes to growth stocks.
Shares in companies that have outstanding growth prospects rarely trade at heavily discounted prices. But I think they are still worth considering for patient long-term investors.
3i
Over the last 10 years, 3i (LSE:III) has grown its earnings per share at an average of 18% per year. And I think that’s the result of a durable competitive advantage that should continue going forward.
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Unlike other private equity firms, 3i concentrates on investing its own capital. And this gives it a unique ability to wait for the right time to deploy cash in attractive opportunities.
The company’s portfolio is heavily exposed to a European discount retailer called Action. While the investment has been a great success, the concentration is a risk for investors to keep in mind.
Over time, I expect 3i to diversify its portfolio as opportunities present themselves. And it offers shareholders exposure to the kind of private companies they might not normally have access to.
Wise
I think Wise (LSE:WISE) might be the most impressive UK business I’ve ever seen. It facilitates overseas money transfers in a way that is cheaper, faster, and more reliable than its rivals.
One thing to note is that the company is currently earning a decent profit on the cash held in its accounts. If interest rates fall, there’s a risk this could fall quite significantly.
That arguably makes the stock look cheaper than it really is. But even with the business of facilitating transfers in exchange for fees, I think there’s good scope for solid returns over time.
Between April and September, the number of customers on Wise’s platform grew by 25%. I’m anticipating more to come going forward, with sales and profits from the core business to follow.
Tristel
Tristel (LSE:TSTL) makes disinfectant wipes and foams for medical purposes. Its chlorine dioxide products are over twice as effective as regular chlorine and don’t produce harmful by-products.
Patent protection has historically limited the firm’s risk. But some patents have already lapsed and others expire in the next few years, removing a barrier to entry for potential rivals.
Management thinks, however, that the complicated nature of the products means copying them isn’t straightforward. And there’s a key growth opportunity that is potentially just getting started.
Tristel has begun selling its products in the US via a distributor. This opens up a huge market that I think could potentially generate substantial growth over the next 10 years.
Long-term growth
None of the stocks I’ve mentioned here are obviously cheap at today’s prices. But I think each of them has the capacity to grow beyond their current market valuations.
That’s the way it works with growth stocks. They might look expensive today, but if I’m right about their growth prospects, today’s prices might look like bargains 10 years from now.
