Buying growth stocks at a reasonable price is one of the best ways to compound your wealth. In an overvalued market today, finding a reasonably valued stock for growth isn’t straightforward. However, below, we will highlight a few picks whose growth and profitability can compensate for your current price.
These three stocks are supported by three long-term themes: cybersecurity, cloud migration and emerging market capital markets development. These themes present an incredible opportunity for these stocks that have established a strong strategic position. Furthermore, these markets are dynamic, with an expanding total addressable market.
Besides growth, these three companies have nailed profitability. As they expand, they are generating significant operating leverage. As a result, EBIT and free cash flow margins are on an upward trajectory. This trend in improving profitability will be more pronounced as they achieve greater scale.
These companies are poised for explosive growth and future success with their innovation, expanding markets and strong financial performances. Stock for growth investors will find these companies attractive additions to their investment portfolios.
CrowdStrike (CRWD)
CrowdStrike (NASDAQ:CRWD) is a leading cloud-native endpoint security platform. While other companies have just begun integrating AI, this security company has been doing so for a decade. Its Falcon platform utilizes advanced artificial intelligence and machine learning to offer real-time threat detection and automated responses.
As cyber threats evolve in complexity and frequency, Crowdstrike has become a critical defense for businesses worldwide. It has positioned itself as the AI-native security platform. Today, it serves several cyber end markets, including endpoint security, security and IT operations, observability, managed services, cloud security and identity protection.
Due to its leadership in cloud endpoint security, it has seen a rapid expansion in its customer base. Moreover, it has a high retention rate and earns more revenues as customers adopt more Falcon modules. New customers, plus the land and expand model that leads to additional subscriptions to more Falcon modules, have brought tremendous success. Subscription annual recurring revenue has grown from $71 million in Q1 fiscal year 2018 to $3.15 billion in Q3 FY2024.
CRWD stock is soaring with subscription revenue growth in the first three-quarters of FY2024, up 37%. Yet despite these astonishing growth numbers, management expects to maintain this momentum. Their optimism is buttressed by a growing total addressable market, which they expect to grow from $100 billion to $225 billion in 2028.
Datadog (DDOG)
As usual, Datadog (NASDAQ:DDOG) reported another impressive quarterly report on Feb. 13. Revenues rose 26% year-over-year to $589.6 million. Initially, the stock sold off but has recovered those losses. Any weakness in this stock for growth is an opportunity to buy.
Over the past five years, Datadog has cemented its leading position in cloud-scale monitoring and analytics. It provides an integrated platform that monitors servers, databases, tools and services through a software-as-a-service data analytics platform. Its platform enables companies to improve operational performance and ensure the high availability of their services.
As companies migrate to cloud computing, the demand for Datadog’s services is expected to surge. The International Data Corporation (IDC) projects that cloud spending growth will average 19.9% annually through 2027. Datadog will capture part of these cloud budgets, given its comprehensive monitoring solutions across cloud providers, servers, databases and applications.
Digging into the latest results, it’s clear that this stock for growth isn’t slowing down. Besides the 26% revenue growth, customer growth was also impressive. Customers with an ARR of $1 million or more increased from 317 in 2022 to 396 as of Dec. 31, 2023. Over the same period, customers with an ARR of $100,000 or more increased from 2,780 to 3,190, a 15% increase.
Datadog’s growth is backed by the secular shift from on-premises to the cloud. Management expects revenue of $2.555-$2.575 billion in FY2024, representing at least 19.9% growth. The company has always surprised to the upside and will do so again.
XP (XP)
XP (NASDAQ:XP) is a leading technology-driven financial services platform transforming Brazil’s financial landscape. It offers a comprehensive product range, including brokerage services, investment advisory and wealth management. The XP platform caters to a broad spectrum of clients, from retail investors to high-net-worth individuals.
Brazil’s financial market is ripe for disruption, and XP is at the forefront of this transformation. Its customer service and innovative technology position it well to capture Brazil’s growing demand for financial services. Furthermore, this stock for growth is a play on capital market development, a secular trend the company will capitalize on.
In 2023, XP showed impressive growth in client base, assets under management (AUM) and revenues. It reached an important milestone in the third quarter, achieving 1 trillion BRL ($201 billion) in client assets. Revenues are accelerating, with 10% growth in the June 2023 quarter and 22% growth in September 2023.
Furthermore, it is seeing tremendous growth in new verticals like retirement plans, insurance and credit cards. In Q3 2023, these verticals grew 52% YOY from 291 million to 442 million BRL.
This growth is a testament to the company’s strong value proposition. XP is well-positioned to capitalize on the expanding financial services market in Brazil. New verticals like credit cards and insurance are growth opportunities that will turbocharge growth.
On the date of publication, Charles Munyi did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
