Investors looking for companies that are well anchored in their sector and can run circles around the popular market barometer, the S&P500 (SNPINDEX: ^GSPC) index, are in the right place.
The stock market has historically returned about 10% per year. If you want to beat the average stock, you need to look for solid companies that grow earnings per share above average. Here are two growth stocks that have outperformed the S&P 500 over the past five years and could do so again.
Amazon (NASDAQ: AMZN) is a large company with a market cap of $2.4 trillion, but it has multiple levers to drive the growth needed to outperform the market.
On a trailing twelve-month basis during the third quarter, operating income increased 130% to $60 billion. Much of this was due to cost savings on the retail side of the business. Amazon’s ability to show significant profit growth while investing in several initiatives – including artificial intelligence (AI) for cloud and retail customers, content for Prime Video and new fulfillment centers – shows why it is a company that is built to last a long time.
The company’s strong growth in non-retail services, which now make up the bulk of its $620 billion in annual revenue, could spur further profit gains to propel the stock higher. Its advertising services generated $53 billion in revenue last year, with revenue rising 19% year-over-year in the third quarter, excluding currency fluctuations.
“Even with this growth, it’s important to realize that we’re just scratching the surface of what’s possible in our video advertising space,” CEO Andy Jassy said during the company’s second-quarter earnings call.
But the bulk of Amazon’s operating profit comes from its cloud computing business, Amazon Web Services, where the company still has plenty of opportunity, as evidenced by its 19% year-over-year revenue increase last quarter.
The stock trades at a high price-to-earnings ratio of 37 based on 2025 earnings estimates. But that seems reasonable given the growth of high-margin revenue streams that can expand margins. Analysts expect the company to achieve 23% annualized earnings growth in the coming years, which should pave the way for market-beating returns.
MercadoLibre (NASDAQ: MELI) provides fintech services and an online marketplace for consumers across Latin America. Ultimately, the country benefits from the tailwinds of the Latin American e-commerce market, which offers a long runway for growth.
MercadoLibre has consistently reported very high growth rates, but e-commerce penetration remains low in Latin America. The market’s unique active buyers grew 21% year-over-year, helping drive a 35% year-over-year revenue increase.
