In today’s low interest rate economy, based on technological disruption, growth stocks have been the flavor of the decade. In fact, growth stocks are currently outperforming value stocks by some of the widest margins since the dot-com bubble, and have outperformed for an unprecedented amount of time.
However, unlike the dot-com bubble, these new tech favorites have legitimate revenue and profit growth, suggesting they are more real than not. Therefore, when searching for the next multiple-label stock, it’s a good idea to keep tabs on those companies that grow faster, as faster producers have the best chance of justifying their high valuations.
Here are three actions that skyrocket: Zoom Video Communications (NASDAQ: ZM), Lemonade (NYSE: LMND), Datadog (NASDAQ: DDOG) – each of which is registering close or triple digit revenue growth.
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Zoom Video Communications: The best quarter of all?
While he was quite skeptical that Zoom Video Communications could justify the assessment investors had assigned to it during the pandemic-fueled first quarter, to the credit of the company, it released some truly surprising results in early June.
Although many people can use Zoom free of charge for 40 minutes, the ease and flexibility of Zoom’s customer-friendly software and “freemium” business model was enough to spur the steamy growth of paid subscriptions as COVID -19 was installed.
Zoom’s last quarter ended on April 30, so it captured a fair amount of the depths of the pandemic outbreak, during which “Zoom” became a verb closely associated with video conferencing. That manifested itself in a massive 169% growth in revenue.
Profits and free cash flow also skyrocketed by many multiples: Adjusted operating income increased from $ 8.2 million to $ 54.6 million. Thanks to many new subscriptions paid in advance, free cash flow increased from $ 15.3 million to $ 251.7 million. Customers paying more than $ 100,000 in 12-month final income soared slightly less than 90%, but new customers with more than 10 employees actually grew 354%.
Investors should be aware that the stock is undeniably expensive with a P / E ratio of 1,452 and a price / sales ratio of 92, including including the impact of the recent successful quarter that is probably the best in the company’s history. That said, if Zoom executes and covers up many of these new free or low-paying customers to become big paying customers over time, the company could see continued growth for years to come.
Lemonade: a tablespoon of sugar in an otherwise tasteless industry
I have never heard of Lemonade (NYSE: LMND)? That may be because this alleged disruptor to the insurance industry just had its IPO on July 2, and what an IPO it was! Priced at $ 29, Lemonade shares shot up 144% on its first day of trading, and it has continued to climb. Currently around $ 85.86 per share, Lemonade’s market cap is $ 4.7 billion, a whopping 36.2 times more than sales.
The enthusiasm for Lemonade’s new shares could be due to how quickly his income grows. In the quarter ended March 31, Lemonade’s revenue increased a whopping 138% year-over-year, from $ 11 million to $ 26.2 million.
“What’s so special about insurance?” you could ask, and you would be correct to do so. The insurance industry is notoriously volatile, with insurers receiving premiums that try to align with payment obligations that can fluctuate from year to year. Reflecting this continuing risk, traditional insurance companies operate at low multiples.
So how does lemonade get a multiple similar to software? Well, Lemonade is trying to do something a little different, with the goal that its business model more closely reflects that of a subscription-based software company. First, to reduce the volatility associated with being an insurer, the company eliminates much of its risk for reinsurers, thus covering the downside. Interestingly, the company also seeks to limit its edge, promoting a unique “return” feature, in which it will donate “leftover money” (whatever it may be) to causes customers choose from a list of previously researched charities.
The result is that Lemonade is basically trying to make her business more like a recurring income business that generates fees with little change in its gross margin year after year. Therefore, attracting loyal customers and increasing volume will be cornerstones of your business. At the time of its IPO, Lemonade only provided insurance for renters and homeowners, but expanded to cat and dog health insurance last week, and the company is looking to offer more insurance products over time.
Lemonade believes it can quickly become a favorite of insurance clients, especially among younger adults. The prospect points out that its technology has been developed from scratch for the modern era, while holders may have older, manual systems. Lemonade offers a fast and easy-to-use digital platform powered by artificial intelligence, with the company’s custom claim processing robot, “AI Jim,” which pays claims in just three seconds.
Combining an intuitive digital experience to simplify an unpleasant task of obtaining insurance, the unique promise of “return” and other millennium-oriented features point Lemonade directly to a younger demographic that might be buying insurance for the first time in a small policy. quantities. Lemonade’s idea is to incubate loyal customers who will stay with the company as they age and move into larger apartments, houses and condos, and buy more products for decades to come.
There are still many open questions with Lemonade, including how its subscription technology will really perform over time, or if its business model can be easily replicated. The company is also losing a lot of money, with a loss of $ 36.5 million in the first quarter, more than 100% of its revenue. That said, while losses have increased in recent years, Lemonade’s subscription at a by policy It has actually improved, with the company’s gross loss rates (gross losses divided by premiums) improving from 161% in 2017 to 79% in 2019.
Although still very new and untested, Lemonade’s goal of reshaping the $ 5 trillion global insurance business has excited investors, and there certainly is great potential there.
Datadog: Hungry for growth?
Finally, the “slowest” of my top three high-growth stocks is the stock of IT monitoring software Datadog (NASDAQ: DDOG), with its growth rate of income registering a “only” 87% last quarter. Customers who spent $ 100,000 or more on an annual income base rose from 508 to 960 over the past year, and total customers increased to over 11,500. Like Zoom, Datadog is also the rare high-growth software stock that is also becoming profitable, and the company expects $ 10 million in adjusted operating profit for the current quarter.
Like previous companies, Datadog is also public, having had its IPO in September 2019, but in reality it is a 10-year-old company that has built a very powerful platform, with more than 400 third-party integrations that encompass monitoring. infrastructure, cloud monitoring, application monitoring and records management on a single unified platform.
Acting as that “glue” between all different types of IT assets makes Datadog a preferred location for developers and operations staff, helping companies to quickly identify problems in their IT infrastructure and quickly fix them. In today’s “always-on” digital world where employees and customers need quick and easy user experiences, Datadog’s monitoring features save organizations a lot of time and money. Therefore, it is not surprising that the company continues to accumulate profits from high-profile customers.
Datadog’s shares are also high at 62.5 times sales, and have risen a ridiculous 224% since their IPO less than a year ago; However, with this type of growth, and more importantly, with the expansion of the gross margin up to 7 percentage points year after year, the astronomical increase in Datadog could be justified.
