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3 Quality Compounders with Exciting Potential
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 such as these set the gold standard in public market investing. That said, here are three quality compounders that could amplify your portfolio’s returns.
TransDigm (TDG)
Market Cap: $60.65 billion
Supplying parts for nearly all aircraft currently in service, TransDigm (NYSE:TDG) develops and manufactures components and systems for military and commercial aviation.
Why Will TDG Beat the Market?
- Core business can prosper without any help from acquisitions as its organic revenue growth averaged 9.3% over the past two years
- Performance over the past five years was turbocharged by share buybacks, which enabled its earnings per share to grow faster than its revenue
- TDG is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders, and its rising cash conversion increases its margin of safety
TransDigm’s stock price of $1,098 implies a valuation ratio of 23.5x forward P/E. Is now the time to initiate a position? See for yourself in our full research report, it’s free.
Vertiv (VRT)
Market Cap: $94.75 billion
Formerly part of Emerson Electric, Vertiv (NYSE:VRT) manufactures and services infrastructure technology products for data centers and communication networks.
Why Is VRT a Good Business?
- Core business is healthy and doesn’t need acquisitions to boost sales as its organic revenue growth averaged 24.2% over the past two years
- Free cash flow margin increased by 32.1 percentage points over the last five years, giving the company more capital to invest or return to shareholders
- Rising returns on capital show management is finding more attractive investment opportunities
Vertiv is trading at $246.31 per share, or 30.6x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
Reddit (RDDT)
Market Cap: $28.77 billion
Founded in 2005 by two University of Virginia roommates, Reddit (NYSE:RDDT) facilitates user-generated content across niche communities (called subreddits) that discuss anything from stocks to dating and memes.
Why Do We Love RDDT?
- Domestic Daily Active Visitors are rising, meaning the company can increase revenue without incurring additional customer acquisition costs if it can cross-sell additional products and features
- Grip over its ecosystem is highlighted by its ability to grow engagement while increasing the average revenue per user by 47.1% annually
- Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends, and its growing cash flow gives it even more resources to deploy
At $149.08 per share, Reddit trades at 14.7x forward EV/EBITDA. Is now a good time to buy? See for yourself in our in-depth research report, it’s free.
High-Quality Stocks for All Market Conditions
ONE MORE THING: Top 5 Growth Stocks. The biggest stock winners almost always had one thing in common before they ran. Revenue growing like crazy. Meta. CrowdStrike. Broadcom. Our AI flagged all three. They returned 315%, 314%, and 455%, respectively.
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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-small-cap company Exlservice (+271% between June 2020 and June 2025). Find your next big winner with StockStory today.