Most people get a little nervous when the word "cult" comes up, and it should be no exception when it comes to talking stocks. Standard Wall Street wisdom says that you should never fall in love with a stock, which, in a way, is exactly what happens to people with cult stocks. With charismatic CEOs, aspirational mission statements and products that promise to make the world a better place, today's cult stocks are easy to fall in love with.
In many cases, that's when investors need to exercise the most caution. Cult stock devotees often overlook the fundamentals and continue to invest even when the stock is dangerously overvalued. They are so enthused by the company's potential that they'll buy in regardless of the price. (See also: How to Tell If a Stock Is Overvalued or Undervalued.)
Take a look at Chipotle Mexican Grill, Inc. (CMG), a classic cult stock of 2015. At its peak in August 2015, Chipotle was trading at $757 per share. In November 2017, it is hovering at around $275 per share. Sure, a few outbreaks of E. coli, salmonella and novovirus didn't help matters, but the fundamentals in 2015 should have worried investors even without the additional problems. (See also: Rise and Fall of a Wall Street Darling.)
All that said, some cult stocks do live up to their stories and pay off in spades for devoted investors. For example, if you bought stock in Apple Inc. (AAPL) a decade ago at $10 per share, it's currently trading at $144 after a 7-for-one split in 2014 – a pretty impressive return. While it's tough to predict which stock will become the next Apple, take a look at these stocks that have developed a cult following among investors.
Note: All figures are current as of November 3, 2017.
Market cap: $86.55 billion
2016 revenue: $8.83 billion (up 30.26%)
2016 EPS: $0.43 (up 164%)
Current price: $200.01
12-month price target: $214.38
Netflix may not represent a bargain at current prices, but it's definitely poised to outperform in 2017. Consider that the company has blown past its subscriber forecasts, adding over 5.3 million subscribers in the last quarter alone. Comparable quarter revenue growth has been above 30% throughout 2017 and new subscribers are forecast at 6.3 million for the fourth quarter. The company continues to put out a strong menu of original content that draws a (pardon the pun) cult following. Netflix stock is up 63.9% over the past 12 months and should continue its strong growth in 2017. (See also: Netflix Setting Up for 2017 Breakout.)
Market cap: $51.08 billion
2016 revenue: $7.00 billion (up 32.29%)
2016 EPS: -$2.87 (down 53%)
Current price: $306.09
12-month price target: $323.48
Tesla received a new round of capital funding in preparation for the launch of the M3 in 2017. The company has been burning through cash in expanding its network of Superchargers. Through the third quarter of 2017, revenue is up 80% at $8.5 billion but net income and earnings per share are reflecting the high costs.
Wall Street is taking a cautious approach – the stock is currently rated a Hold, suggesting that the cash-strapped company is overvalued. There are, however, several optimistic signs. CEO Elon Musk is definitely a visionary with deeply committed investors. (See also: Tesla to Raise $1.15B From Markets.) And Tesla is building up its energy business, which should balance out any ups and downs in the M3 launch. The stock is up 60.63% over the past 12 months. Chinese company Tencent Holdings Limited (TCEHY) also recently acquired a 5% passive stake, worth an estimated $2 billion, in the automaker.
Market cap: $1.36 billion
2016 revenue: $268.48 million (up 41%)
2016 EPS: $0.46 (up 36%)
Current price: $36.98
12-month price target: $38.00
Shake Shack has the intense brand appeal that's the hallmark of a good cult stock. The stock is trading at $36.98 which is still below its 2015 IPO price, but the company is showing strong signs of growth. The number of stores has more than doubled since its IPO, and it has been aggressively forecasting new store openings for 2017 and 2018. Estimates report 44 store openings in 2017 and 53 in 2018. Analysts continue to see upside in the stock with a 12-month price target of $38, according to data compiled by Investopedia. (See also: Analysts See 54% Upside Potential in Shake Shack.)
In the second half of the year the stock has gained 6.02%. Its third quarter revenue reported a comparable quarter growth rate of 26.9% with sales of $94.6 million. Earnings per share for the third quarter beat analysts' estimates by $0.02.