Sometimes the greatest potential lies in seemingly modest companies, and investors looking for hidden (but vital) gems may want to seek out so-called "tollbooth" stocks—firms that operate a critical, if niche, portion of an industry that enjoy a near-monopoly on their services or products. These may not be the flashiest names, but they succeed because most anyone else in their industry or sector relies on them in order to do business.
Three unique tollbooth stocks—Woodward Inc. (NASDAQ: WWD), Jack Henry & Associates Inc. (NASDAQ: JKHY), and Roper Technologies Inc. (NASDAQ: ROP)—may stand out for investors looking to employ this unique strategy when building a portfolio. None of these companies is massive (the largest has market capitalization of about $36 billion), but they all have important niches that help to ensure their continued success within broader industries.
Woodward's Aerospace Business Soars
Woodward is behind a variety of precision components for aerospace and industrial clients, including metering units, air valves, pumps, nozzles, and more. Due to their essential nature, these components are vital in every airplane and many other settings as well.
Despite recent troubles for the aviation industry more broadly, Woodward has had a fantastic past few months: in its last earnings report, the company achieved 29% year-over-year (YOY) sales growth and 54% earnings per share (EPS) improvement. Both of these figures came in well ahead of consensus estimates, the result of strong performance in both aerospace and industrial products.
It's likely that a continued escalation of the war in Iran will lead to surging demand for Woodward's defense-oriented products, even if inflation and an oil crisis may hamper air travel more broadly in the months to come.
With this in mind, the company's optimistic guidance of 14% to 18% growth YOY and total EPS between $8.20 and $8.60 for all of fiscal 2026 (ending Sept. 30 of this year) could be well within reach.
With over 80% returns in the last year and more than 15% year-to-date (YTD), it's unclear how much more room there is for WWD shares to run in the near-term. Analysts believe the stock is trading almost exactly in line with consensus estimates. Still, more than two-thirds of Wall Street ratings of WWD are positive, suggesting widespread bullishness.
Jack Henry Remains a Go-To Financial Services Provider
A provider of processing platforms and other technologies for thousands of bank and credit union customers, Jack Henry offers a sticky product that has strong potential for long-term recurring revenue. Despite the threat of newer fintech service providers, many clients find Jack Henry's tools to be so deeply embedded in their systems that they are strongly disincentivized to change providers.
The results are evident in the company's earnings for Q2 fiscal 2026, ended Dec. 31, 2025. During that period, the firm posted 7.9% YOY revenue growth, climbing profits, and momentum in both its services and support revenue as well as its processing business. EPS of $1.72 came in ahead of predictions by an impressive 29 cents, and net margin and return on equity were both notable as well at 20.6% and 23.8%, respectively.
Jack Henry continues to innovate with new offerings, including its Tap2Local payments solution for small businesses. With shares down more than 15% YTD, Jack Henry's price/earnings (P/E) ratio of around 22 is now lower than both the broader market average and the financials sector average. Analysts have given JKHY shares a Moderate Buy rating and predict about 30% in upside potential.
A Conglomerate With Software Monopolies Keeps Expanding
Unique in this list, Roper Technologies is a holding company that owns dozens of separate technology firms. Its special focus on companies with strong recurring revenue has helped it to continue to build free cash flow through a long series of acquisitions over many years.
This led to revenue, EBITDA, and free cash flow climbing by 12%, 11%, and 8% YOY, respectively, for 2025. EBITDA margin is highly impressive at 42.2% as of the last earnings report.
As the company deploys an AI accelerator in an effort to continue to refine its acquisitions and boost recurring revenue, analysts see almost 40% in share price improvement possible for Roper. Of course, investors should beware that Roper's strategy necessarily employs debt, meaning that if acquisition returns come in under expectations the company's model of compounding growth via expansion may falter.
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The article "3 "Tollbooth" Stocks With Hidden Monopolies in Their Industries" first appeared on MarketBeat.
