2 smart growth stocks to buy now

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gRank stocks, on average, have produced an annualized return of 13.4% over the past 15 years, crushing the 8% average annualized return of value stocks, according to S&P Global. In other words, even taking into account the stock market crash of 2008, which saw the S&P 500 falling by more than 50%, growth has consistently outperformed value over the long term.

Of course, growth stocks tend to be more volatile investments, on average as well. But if you can handle this volatility, I think it’s wise to allocate at least a small portion of your portfolio to growth. In this spirit, Elastic (NYSE: ESTC) and Focus on video communications (NASDAQ: ZM) look like smart shopping. Let’s find out a little more about these two growth stocks.

Image source: Getty Images.

1. Elastic

Elastic is a research company that creates self-management and Software as a Service (SaaS) offerings for research, logging, security, and analytics. At the heart of its platform is the Elastic Suite, a set of tools that help customers ingest and store data from any source, and then find, analyze, and visualize that data. Developers can use these tools to create custom solutions or deploy three predefined applications: Enterprise Search, Observability, and Security.

Elastic Enterprise Search is a workplace search engine that helps customers navigate company documents and data to find the right resource; this product also allows customers to add search bar to websites or mobile apps. And Elastic Observability and Security helps IT teams index and analyze data to troubleshoot performance issues and eliminate threats.

In general, Elastic’s developer mindset and freemium pricing strategy have been powerful engines of growth. In fact, Elastic is by far the most popular search engine in the workplace, according to DB-Engines. And Forrester Research recently recognized the company as a leader in cognitive research.

These advantages have translated into a strong financial performance over the past two years.

Metric

Q1 2020 (TTM)

Q1 2022 (TTM)

TCCA

Returned

$ 304.7 million

$ 672.7 million

49%

Free movement of capital

($ 35.5 million)

$ 9.1 million

N / A

Source: Ycharts. TTM = 12 rolling months. CAGR = compound annual growth rate. Note: Q1 2022 ended July 31, 2021.

Elastic now has more than 16,000 customers, up 32% from the previous year, and 780 of those customers have annual contracts over $ 100,000. To add, Elastic also posted a “just under 130%” net expansion rate in the last quarter, meaning the average customer spent almost 30% more this year than last year.

Last year, Elastic expanded its partnership with Microsoft, an evolution that should promote the adoption of its SaaS platform, Elastic Cloud. Currently, most customers are managing their own Elastic Stack deployments, but the company sees Elastic Cloud as a significant growth opportunity.

Looking ahead, management estimates its addressable market at $ 78 billion, which means Elastic has plenty of room to operate. More importantly, the company is executing its growth strategy, as evidenced by its strong financial performance. This is why this action looks like a smart buy.

2. Focus on video communications

Zoom has fundamentally changed the way many people interact online. During the pandemic, its meeting software gained wide acceptance because it played a vital role in connecting socially distant friends, families, students and employees. In fact, Zoom Meetings now has a 50% market share in the video conferencing space, making it by far the most popular product.

But Zoom is more than a video conferencing company; it provides a video-centric unified communications platform. This includes Zoom Rooms, a software-based conference room system that turns the corporate office into collaborative suites. It also includes Zoom Phone, a cloud-based phone system designed to eliminate the need for expensive on-premises telecommunications equipment.

In short, Zoom is disrupting traditional business communications, targeting a total addressable market that management estimates at $ 91 billion by 2025. And the company is executing a strong, customer-centric growth strategy, such as As can be seen from his incredible financial performance over the past two years.

Metric

Q2 2020 (TTM)

Q2 2022 (TTM)

TCCA

Returned

$ 463.7 million

$ 3.6 billion

180%

Free movement of capital

$ 46.3 million

$ 1.7 billion

501%

Source: Ycharts. TTM = 12 rolling months. CAGR = annual compound growth rates. Note: Q2 2022 ended July 31, 2021.

In the last quarter, revenue growth slowed to 54% – a number many companies would like to hit – but this is a natural response following Zoom’s supercharged performance last year.

Even so, there were several bright spots. For example, the company posted a 130% net expansion rate for the 13th consecutive quarter, indicating a 30% increase in average customer spend. And on the recent earnings conference call, management noted strong momentum with Zoom Rooms and Zoom Phone, the latter having now sold more than 2 million seats. In total, the company now has 504,900 paying customers (i.e. including companies with more than 10 employees), up 36% from the previous year.

Here’s the gist: Zoom has established itself as a leader in the video conferencing industry, but its platform offers a wide range of solutions that should be relevant whether people are working remotely or not. That’s why this growth stock looks like a smart buy for long-term investors.

10 actions we prefer over Elastic
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Teresa Kersten, an employee of LinkedIn, a subsidiary of Microsoft, is a member of the board of directors of The Motley Fool. Trevor Jennevine has no position in the stocks mentioned. The Motley Fool owns shares and recommends Elastic, Microsoft, S&P Global and Zoom Video Communications. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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