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.
We love companies like this because something about their business models makes them special. Keeping that in mind, here are three quality compounders that could turbocharge your returns.
Dynatrace (DT)
Market Cap: $16.25 billion
Founded in Austria in 2005, Dynatrace (NYSE: DT) provides companies with software that allows them to monitor the performance of their full technology stack, from software applications to the infrastructure they run on.
Why Are We Fans of DT?
- ARR trends over the last year show it’s maintaining a steady flow of long-term contracts that contribute positively to its revenue predictability
- Software is difficult to replicate at scale and results in a stellar gross margin of 81.9%
- Strong free cash flow margin of 25.4% enables it to reinvest or return capital consistently
Dynatrace is trading at $54.66 per share, or 8.4x forward price-to-sales. Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.
The Trade Desk (TTD)
Market Cap: $37.38 billion
Founded by former Microsoft engineers Jeff Green and Dave Pickles, The Trade Desk (NASDAQ: TTD) offers cloud-based software that uses data to help advertisers better plan, place, and target their online ads.
Why Will TTD Outperform?
- Billings have averaged 26.1% growth over the last year, showing it’s securing new contracts that could potentially increase in value over time
- Fast payback periods on sales and marketing expenses allow the company to invest heavily and onboard many customers concurrently
- Highly efficient business model is illustrated by its impressive 17.6% operating margin, and its operating leverage amplified its profits over the last year
At $76.01 per share, The Trade Desk trades at 12.9x forward price-to-sales. Is now a good time to buy? Find out in our full research report, it’s free.
Cintas (CTAS)
Market Cap: $91.21 billion
Starting as a family business collecting and cleaning shop rags in Cincinnati, Cintas (NASDAQ: CTAS) provides corporate identity uniforms, facility services, and safety products to over one million businesses across North America.
Why Should You Buy CTAS?
- Annual revenue growth of 8.6% over the last two years beat the sector average and underscores the unique value of its offerings
- Adjusted operating profits increased over the last five years as the company gained some leverage on its fixed costs and became more efficient
- Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends, and its improved cash conversion implies it’s becoming a less capital-intensive business
Cintas’s stock price of $225 implies a valuation ratio of 48.5x forward P/E. Is now the time to initiate a position? See for yourself in our full research report, it’s free.
Stocks We Like Even More
Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.
While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market by checking out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today for free.
