It’s true that most of the growth stocks saw significant losses in 2022 and then somewhat recovered in 2023. This year has been more turbulent.
The good news is that the iShares S&P 500 Growth ETF (NYSEARCA:IVW) has returned roughly 24% this year, suggesting that the upward trajectory might prove to be a long-term trend.
Choosing individual companies to round out a growth portfolio isn’t easy in the current environment but these three growth stocks may be worth a closer look.
Shopify 5-Year Forecast Suggests Its a Steal
Shopify Inc. (NYSE:SHOP) is one of the hottest online storefront tools, having attracted more than half a billion customers with businesses of all sizes who want a fast, easy way to enter the online marketplace.
The company reported revenue of $1.9 billion in the fiscal first quarter of 2024, which is 23% higher than the amount recorded for the same period in the previous year. This increase was primarily driven by consumers’ greater adoption of e-commerce over traditional brick-and-mortar stores.
Gross merchandise value rose by 23% from the first quarter of 2023 to $60.9 billion, and revenue from subscription solutions grew 34% to $511 million. Shopify’s increased market penetration and improved efficiency helped deliver these financial gains.
Shopify’s free cash flow totaled $232 million, a significant increase from the previous year’s $86 million, giving analysts reason to be optimistic about the company’s overall financial stability and its capacity to invest resources in the research and development of new tools and services.
Perhaps the most important achievement is Shopify’s ability to continuously onboard new merchants, ranging from small-scale businesses to massive corporations. Clients are attracted to the outstanding selection of features and enhancements, such as AI-integrated analytics, omnichannel, and global payment solutions. These user-friendly features place Shopify in a strong competitive position in the crowded digital financial services market.
Successful acquisitions and partnerships in the logistics, payments, and technology sectors have also enhanced Shopify’s offerings and expanded its client base. Combined, they are expected to keep Shopify ahead of its rivals over the long-term.
Although Shopify stock has dropped by more than 15% this year, analysts are predicting a corresponding rise. The median target price for Shopify shares is $78.11, up nearly 20% from current levels. And while bears will point to the 73x price-to-earnings multiple, it’s worth noting that relative to forecasted net income growth of 85% annually over the next few years, Shopify may in fact be a bargain.
Block Seems Really Cheap When Growth Considered
The company formerly known as Square, now rebranded as Block (NYSE:SQ), is a powerhouse in the financial technology sector as evidenced by recent financial results.
Block generated net revenue of $5.96 billion for the most recent quarter, a rise of 19% over the same period in the previous year.
The company’s steady growth is the result of the increase in revenues from multiple segments of the business, including Cash App and the Square Ecosystem. Block’s gross profit has grown to $2.09 billion, which is 22% more than the same period in the prior year.
Among its key achievements, Block’s popular Cash App service boosted the company’s revenue with a reported $1.26 billion in gross profit. That figure represents an increase of 25% year over year. Square recorded a gross profit of $820 million, a 19% rise from the previous year.
Cash App’s enhanced features such as investing, borrowing, and buying/selling cryptocurrencies have kept user engagement high and transformed Cash App into a comprehensive financial ecosystem that easily competes with traditional platforms. As a result, Cash App is expected to play an important role in Block’s customer retention rates and long-term revenues.
Block’s engagement in the cryptocurrency space has been effective in attracting customers who are interested in Bitcoin trading and blockchain technology. This, coupled with expanded services that include more conventional methods of exchanging digital currencies, has ensured Block’s competitive edge.
Indeed, Block was one of the first to market, and it has pioneered critical advances that give customers confidence. That’s a must after the spectacular failure of several other cryptocurrency businesses.
Other acquisitions have broadened the scope of Block’s services. One of the most promising is the purchase of Afterpay for buy now/pay later (BNPL) services. BNPL has become wildly popular, and Afterpay is a leading provider. This type of service expansion diversifies Block’s sources of revenue and increases its market territory.
Despite a series of wins, Block stock has suffered from some weakness in share price performance this year. The good news is that analysts believe Block stock has a considerable upside over the coming 12 months as a result of its ongoing revenue growth and strategic initiatives.
The median target price from 41 analyst forecasts is $88,32, more than 35% above the current price at the time of writing.
Like Shopify, it seems expensive on a P/E basis, trading at 58x earnings but relative to forward growth, which is forecast at 237% annually over the next five years, Block appears cheap.
CrowdStrike
CrowdStrike Holdings, Inc. (NASDAQ:CRWD) is a leader in the cybersecurity field thanks to proprietary technology that is enhanced with cloud computing.
The sheer volume and cost of cybercrime make implementing comprehensive cybersecurity plans a must for businesses. The addressable market is enormous, which means CrowdStrike has plenty of room to grow even after ramping up sales massively in recent years.
The flagship offering, the Falcon platform by CrowdStrike, is an integrated AI for threat prevention and detection and is popular for its compatibility with enterprises’ existing IT ecosystems and its unmatched capabilities around addressing endpoints, workloads, and identities.
Another key attribute is that CrowdStrike’s platform offers real-time threat assessment, making it a preferred choice for companies that need reliable protective measures.
The company’s success is evident in the consistent increase in new subscribers and the regularity with which existing users expand their relationship with CrowdStrike.
Total revenue was reported at $921 million for the quarter that ended April 30, 2024. That figure is 33% higher than the same period in 2023. CrowdStrike also reported success in achieving operational efficiencies with a non-GAAP gross margin of 78%.
CrowdStrike’s Annual Recurring Revenue rose to $3.65 billion, which is 33% higher than the previous year’s results, indicating that a whole new cohort of customers have selected it while existing ones are sticking around.
CrowdStrike’s growth prospects, market standing, operating performance, and financials, are expected to defend its widening moat.
Similar to Shopify and Block, Crowdstrike is forecast to grow its bottom line at a rapid clip of 98.8% annually over the next 5 years, which if true would make the sky high 488x price-to-earnings ratio seem reasonable. Analysts see upside to $327.61 per share.
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