2 Stocks That Could Create Lasting Generational Wealth

Key Points

• Roblox continues to make progress on achieving its ambitious long-term goals.

• Shopify has already delivered tremendous returns for investors, yet it has still a substantial opportunity ahead.

• 10 stocks we like better than Roblox ›

Regularly adding money to a portfolio of quality growth stocks can help you multiply your savings. By maintaining a long-term mindset and patiently holding shares of innovative businesses, investors may be surprised how much their money snowballs over decades.

Here are two to buy right now showing great potential.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

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1. Roblox

Interactive entertainment is a large industry worth about $200 billion and growing. Roblox (NYSE: RBLX) could capture a sizable share of the industry with its unique combination of social media elements and gaming experiences. The platform is mostly free to play and has more than 112 million daily active users, and it's aiming for 1 billion users over the long term.

The stock has hit new highs recently following strong earnings results. Roblox has consistently grown revenue at more than 20% year over year in recent quarters, but investors are starting to price in the prospect of substantial growth in profitability, as noted by its growing free cash flow.

Free cash flow per share has improved to $1.41 on a trailing-12-month basis, up from -$0.20 a few years ago. Roblox is benefiting from investments it has made in expanding its cloud server capacity. This is allowing the platform to adequately handle spikes in concurrent users without having to spend more capital for more server capacity.

With the business starting to see free cash flow margin rise as it achieves greater scale as a business, the company looks more attractive from an investor's perspective. Daily active users grew 41% year over year in the second quarter, accelerating from 26% in Q1. Its profitability also benefits from a user-created content strategy that allows it to capture upside from trends very rapidly. For example, Grow a Garden was a new release in March that has attracted more than 20 million concurrent users and helped drive the acceleration in user growth last quarter.

Growth in free cash flow will allow Roblox to reinvest in its technology infrastructure and advertising technology to grow the business. The stock offers attractive long-term upside as management pursues its goal of reaching 1 billion users and capturing 10% or more of annual video game spending.

2. Shopify

Shopify (NASDAQ: SHOP) has become a leading destination for business owners looking to set up an online store. Despite already serving millions of merchants and delivering a 5,000% return to shareholders over the last 10 years, it's just scratching the surface of its potential.

Based on the value of transactions with a Shopify merchant, it has about 12% of the e-commerce market. This indicates a long runway of growth. Shopify's gross merchandise volume (GMV) grew 31% year over year last quarter, while its business in Europe saw a 42% increase in GMV.

Artificial intelligence (AI) could have a significant impact on its growth. Shopify is rolling out AI tools that help merchants start, manage, and grow their business. Most of its revenue comes from merchant solutions, such as capital lending, shipping, and other services, so as its customers grow their business, Shopify collects more revenue from these services, benefiting investors.

Shopify is serving a growing tailwind, as the e-commerce market is growing around 7% per year, according to eMarketer. It is very telling about the company's competitive positioning that Shopify's GMV is growing much faster than the global e-commerce market. It is winning over merchants of all sizes, from small businesses to large global brands.

The company's free cash flow has exploded over the last few years and increased 31% year over year in the second quarter, which is supporting the stock's valuation. With such a small share of e-commerce spending, Shopify could compound the value of your investment for decades to come.

Should you invest $1,000 in Roblox right now?

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John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Roblox and Shopify. The Motley Fool has a disclosure policy.