Quality compounders are flywheels. Said differently, they’re businesses that generate heaps of profits and consistently reinvest them to produce even more profits. Rinse and repeat.
Companies with these characteristics are our definition of a "blue-chip". On that note, here are three quality compounders that could turbocharge your returns.
Duolingo (DUOL)
Market Cap: $14.78 billion
Founded by a Carnegie Mellon computer science professor and his Ph.D. student, Duolingo (NASDAQ:DUOL) is a mobile app helping people learn new languages.
Why Is DUOL a Good Business?
- Has the opportunity to boost monetization through new features and premium offerings as its monthly active users have grown by 36.5% annually over the last two years
- Performance over the past three years shows its incremental sales were extremely profitable, as its annual earnings per share growth of 311% outpaced its revenue gains
- Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends, and its growing cash flow gives it even more resources to deploy
Duolingo is trading at $322.64 per share, or 46.2x forward EV/EBITDA. Is now a good time to buy? Find out in our full research report, it’s free for active Edge members.
TransDigm (TDG)
Market Cap: $72.63 billion
Supplying parts for nearly all aircraft currently in service, TransDigm (NYSE:TDG) develops and manufactures components and systems for military and commercial aviation.
Why Are We Backing TDG?
- Existing business lines can expand without risky acquisitions as its organic revenue growth averaged 13% over the past two years
- Incremental sales significantly boosted profitability as its annual earnings per share growth of 24.9% over the last two years outstripped its revenue performance
- Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends, and its recently improved profitability means it has even more resources to invest or distribute
TransDigm’s stock price of $1,289 implies a valuation ratio of 30.7x forward P/E. Is now the right time to buy? See for yourself in our full research report, it’s free for active Edge members.
Nextracker (NXT)
Market Cap: $11.41 billion
With its technology playing a key role in the massive 1.2 gigawatt Noor Abu Dhabi solar farm project, Nextracker (NASDAQ:NXT) is a provider of solar tracker systems that help solar panels follow the sun.
Why Are We Bullish on NXT?
- Average backlog growth of 41.6% over the past two years shows it has a steady sales pipeline that will drive future orders
- Free cash flow margin increased by 13.6 percentage points over the last five years, giving the company more capital to invest or return to shareholders
- Improving returns on capital reflect management’s ability to monetize investments
At $77 per share, Nextracker trades at 19.8x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free for active Edge members.
High-Quality Stocks for All Market Conditions
Trump’s April 2025 tariff bombshell triggered a massive market selloff, but stocks have since staged an impressive recovery, leaving those who panic sold on the sidelines.
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