Peter Lynch managed Fidelity's Magellan Fund for 13 years. Under his stewardship, the fund generated an annualized return of 29%, earning Lynch a reputation as one of Wall Street's top stock pickers. While his wisdom cannot be condensed into a single sentence, this quote is worth remembering: "You only need a few really big stocks in a lifetime to make a lot of money."
When you buy a stock, you can't lose more than 100% of your investment, but if you've built a portfolio of high-quality stocks, chances are some of those investments will increase severalfold in value. For instance, I think Latch and Docebo could both produce 10x returns in the next decade. Here's why.
1. Latch
Latch is modernizing apartments and commercial offices with smart building technology. Its software, LatchOS, powers a lineup of first-party hardware devices, including door-mounted access controls, delivery assistants, intercoms, and cameras. Latch technology creates a premium experience for residents and employees, allowing them to unlock doors, admit guests, and control smart home devices from a mobile app. Latch also streamlines workflow for property managers and building staff, enabling them to control access permissions remotely.
Latch has achieved a particularly strong presence in apartment buildings. In fact, over 30% of new apartments in the U.S. are built with Latch smart locks, and the driving force behind that success is its comprehensive portfolio. While most rivals focus on one part of the smart building experience, Latch is a one-stop shop for clients, providing all the hardware, software, and services they need.
Not surprisingly, that competitive edge has resulted in rapid growth. Latch posted revenue of $41 million in 2021, up 129% from the prior year. And total bookings came in at $360 million, up 118%, implying strong future revenue growth.
On a less optimistic note, Latch generated negative free cash flow of $115 million over the past year, but the company has $284 million in cash and investments on its balance sheet. More importantly, Latch should be free cash flow positive by 2023, according to management.
Here's the big picture: Latch has achieved a strong foothold in U.S. apartment buildings, and it recently expanded into commercial office buildings. Currently, management puts its market opportunity at $54 billion in the U.S., and expansion into Europe would add $90 billion to that figure.
In short, Latch has a tremendous runway for future growth, and despite the fact that it's losing money, I think this business -- currently valued at $563 million -- could easily generate 10x returns over the next decade.
2. Docebo
Employee turnover rates have increased 88% since 2010, according to Work Institute. That's a big problem for employers. When you total all the expenses -- lost productivity, the time spent on hiring, and the time spent training new employees -- turnover costs U.S. businesses about $1 trillion each year. But workplaces that offer ongoing training opportunities often see lower turnover rates and greater productivity. That's where Docebo can make a difference.
Docebo's learning management system simplifies training for employees, partners, and customers. In addition to ready-made courses, its platform leans on artificial intelligence to convert corporate resources into training material. Docebo then allows clients to deliver, track, and measure the impact of learning against business metrics. It even personalizes the experience for each employee to drive engagement, and it allows administrators to inject training content into daily workflow to promote a culture of continuous development.
The Financial Times recently recognized Docebo as one of the fastest-growing companies of 2022, and Fosway Group has named Docebo an industry leader for five consecutive years. That competitive edge has helped the company win big customers like Amazon Web Services and Netflix. Better yet, it has translated into solid financial results.
Last year, Docebo grew its customer base 29% to 2,805, and the average customer spent 13% more, demonstrating the stickiness of its platform. In turn, revenue climbed 66% to $104 million in 2021. And while Docebo generated negative free cash flow of $4 million, with $215 million in cash on its balance sheet, the company can afford to burn money at that pace for many years as its business scale.
Looking ahead, management puts its market opportunity at $38 billion by 2026. Given the costly nature of employee turnover and Docebo's solid competitive position, I think this business -- currently valued at $1.6 billion -- could grow tenfold in value over the next decade.