1 Under-the-Radar Growth Stock Up 510% Since the Beginning of 2023

You can see it in the company’s geographical user breakout. The “Rest of World” segment — everywhere except The Americas and Europe — was 19% of overall users in 2020. Last quarter, it reached 33% of MAUs, which equates to over 200 million MAUs. There are billions of potential customers in these countries, even if you exclude places like China, where Spotify doesn’t operate.

But will Spotify be able to monetize these users? They don’t have the wealth or income to pay the same subscription fees as a country like the United States, but it looks like there are people willing to pay up for ad-free listening in most countries around the world. In fact, premium subscribers grew at 12% year over year last quarter, which was faster than MAU growth.

On top of new premium users, Spotify should be able to raise prices consistently in more mature markets. It has raised prices in the United States twice over the last two years with minimal effect on churn figures. This indicates there is room for management to continue raising prices over the next decade, especially if the company keeps adding new features like audiobooks to increase the value of a Spotify subscription.

Spotify may decide to split its stock in the future, but if you are thinking about buying shares in anticipation of a split, here’s the frank truth: A stock split is meaningless over the long term. Sure, a stock may rise in the lead-up to a stock split, but it has no bearing on how the underlying business is performing.

But earnings per share (EPS) and cash flow growth are key drivers of a stock’s long-term returns. Spotify’s free cash flow is soaring to record highs due to its cost cuts, hitting around $2 billion over the trailing 12 months. The stock has a market cap of about $95 billion as of this writing, meaning it trades at 48 times trailing free cash flow. And its valuation multiple soars even higher to nearly 130 when looking at trailing earnings per share.

Even though Spotify has solid growth prospects over the next decade, this is an expensive stock following its incredible two-year rally. I’d suggest keeping this one on your watchlist.

Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.

On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:

• Nvidia: if you invested $1,000 when we doubled down in 2009, you’d have $355,011!*

• Apple: if you invested $1,000 when we doubled down in 2008, you’d have $44,516!*

• Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $470,586!*

Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.

See 3 “Double Down” stocks »

*Stock Advisor returns as of November 25, 2024

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Brett Schafer has positions in Alphabet, Amazon, and Spotify Technology. The Motley Fool has positions in and recommends Alphabet, Amazon, Nvidia, Spotify Technology, and Tesla. The Motley Fool has a disclosure policy.

Stock-Split Watch: 1 Under-the-Radar Growth Stock Up 510% Since the Beginning of 2023 was originally published by The Motley Fool