A quality compounder is a business that not only sports durable competitive advantages but also builds on its success by consistently reinvesting its profits at high returns.
Companies with these characteristics are our definition of a “blue-chip”. That said, here are three quality compounders that deserve a spot on your list.
Carvana (CVNA)
Market cap: $49.35 billion
Known for its glass tower car vending machines, Carvana (NYSE: CVNA) provides a convenient automotive shopping experience by offering an online platform for buying and selling used cars.
Why Should You Buy CVNA?
- Retail Units Sold have grown by 37.7% annually, allowing for more profitable cross-selling opportunities if it can build complementary products and features
- Switching costs of its platform were on full display over the last two years as it not only grew engagement but also increased the average revenue per unit by 10.7% annually
- Share repurchases have amplified shareholder returns as its annual earnings per share growth of 49.5% exceeded its revenue gains over the last three years
Carvana is trading at $68.32 per share, or 14.7x forward EV/EBITDA. Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.
DexCom (DXCM)
Market cap: $30.69 billion
Founded in 1999 and receiving its first FDA approval in 2006, DexCom (NASDAQ: DXCM) develops and sells continuous glucose monitoring systems that allow people with diabetes to track their blood sugar levels without repeated finger pricks.
Why Is DXCM a Good Business?
- Core business is healthy and doesn’t need acquisitions to boost sales as its organic revenue growth averaged 13% over the past two years
- Free cash flow margin jumped by 12.2 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
- Returns on capital are climbing as management makes more lucrative bets
DexCom’s stock price of $82.68 implies a valuation ratio of 27.1x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
Encompass Health (EHC)
Market cap: $13.41 billion
With a network of 161 specialized facilities across 37 states and Puerto Rico, Encompass Health (NYSE: EHC) operates inpatient rehabilitation hospitals that help patients recover from strokes, hip fractures, and other debilitating conditions.
Why Are We Fans of EHC?
- Free cash flow margin grew by 6.1 percentage points over the last five years, giving the company more chips to play with
- Industry-leading 16% return on capital demonstrates management’s skill in finding high-return investments, and its returns are growing as it capitalizes on even better market opportunities
- Rising returns on capital show management is finding more attractive investment opportunities
At $134.56 per share, Encompass Health trades at 19.6x forward P/E. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.
Stocks we like even more
WHILE YOU’RE HERE: Top 9 Market-Beating Stocks. The best stocks don’t just beat the market once. They do it again. And again. Robust revenue growth, rising free cash flow, returns on capital that leave their competition in the dust. The market has already rewarded these businesses.
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,552% between June 2020 and June 2025). Find your next big winner with StockStory today.
