2 hypergrowth stocks to buy in 2022 and beyond
In 2021, hypergrowth stocks were all the rage and investors couldn’t get enough. Unfortunately, 2022 was a whole different story, as this segment of the stock market suffered a lot. Admittedly, some of this selling was deserved, as many of these actions were overhyped. However, not all stocks that have suffered are expected to stay indefinitely.
In fact, the downturn has caused many of these stocks to sell at investment-friendly levels. Here are two growth stocks that could make good buys today:
1. Snowflake’s growth opportunity remains intact
Snowflake (SNOW -1.01%) earned perhaps one of the highest valuations in 2021. After beating over 150x sales when it went public at the end of 2020, it has spent most of 2021 at around 100x sales. sales. It’s hard to deny the stock was overvalued, but it looks more investable at 31 times the sales.
Snowflake’s software allows its customers to store and process mountains of data on cloud servers. It can also funnel this data into various models, allowing businesses to make real-time decisions about the most up-to-date data. Customers find this solution incredibly useful, which is why they are rapidly expanding their use of the Snowflake product, spending $171 this quarter for every $100 spent last year.
This helped product revenue grow 83% to $466 million, an impressive rate. Still, 28 times sales — what Snowflake is trading today — is a steep price tag for the company. This is all the more true since it is a business that generates no profit. However, Snowflake’s massive $248 billion market opportunity in the cloud computing space by 2026 certainly leaves it plenty of room to grow. As a result, I think Snowflake’s stock is a great buy, but investors should be aware of the risk in its valuation.
2. Data dog
With all the different software that companies use today (like Snowflake), it’s critical to see that it’s working properly and that the data flowing through the programs is uninterrupted and secure. Datadogit is (DDOG -3.14%) The software allows IT teams to monitor the health of these programs while ensuring security. A testament to Datadog’s offering, it was named a leader in the Application Performance Monitoring and Observability category while earning the highest score for its ability to run in Gartner.
Its business is also growing rapidly, with revenue up 61% year-over-year to $437 million in the third quarter. Like Snowflake, Datadog is also not profitable, although its operating loss was only $31.3 million. Datadog continues to expand its reach, adding approximately 4,700 customers over the past 12 months to 22,200.
With this growth, it’s no surprise that Datadog’s stock is highly valued, as the stock trades at 17 times sales. However, Datadog is in the early stages of expansion, with only 16% of its customer base using six or more products compared to 80% using two or more. I think the stock is a strong buy hereas next year’s growth will bring the stock back to a more reasonable level.
Fast-growing companies will almost always be highly valued. So the question becomes, “Is the company too richly valued to be a worthwhile investment?” While this requires a thorough analysis of a company’s finances, growth rate, and market opportunities, the first step is to find companies that meet the criteria for rapid growth. I think these two growth stocks are a great starting point, and they will likely remain high growth companies for many years to come.
Keithen Drury has positions in Datadog and Snowflake Inc. The Motley Fool has positions in and recommends Datadog and Snowflake Inc. The Motley Fool recommends Gartner. The Motley Fool has a disclosure policy.