Investing in technology stocks involves making educated assumptions about the future. We need to consider what the needs of consumers and businesses will be over the next year, but more importantly over the next 10 years, as the greatest value is typically made in the long term. If we figure this out, we can catch stocks during periods of significant growth.
Three Motley Fool contributors think Axcelis Technologies (NASDAQ:ACLS), Confluent (NASDAQ:CFLT), and Cloudfare (NYSE:NET) are on the cusp of powerful growth phases. Here's why.
IMAGE SOURCE: GETTY IMAGES.
Driving semiconductor production
Anthony Di Pizio (Axcelis Technologies): The world has grappled with a crippling semiconductor shortage since the start of the pandemic, as production was shut down across Asia to curb the spread of the virus. These advanced computer chips are critical to some of the most popular consumer products like smartphones, computers, and even new cars, which are teeming with digital features.
Axcelis makes ion implantation equipment that's essential to the semiconductor manufacturing process, and it's experiencing a surge in demand as the world's largest chipmakers race to expand their production capacity. In fact, in September the company announced it shipped an entire family of its Purion Power Series to producers in Asia and Europe; this is part of its power device line designed for chips that will be used for automotive and mobile purposes.
The automotive segment is particularly important right now, as the inability to access chips has forced car manufacturers to slash production, sending prices soaring for consumers. It's so significant that it's driving a rise in overall inflation, with new-car input up over 9% in the last 12 months, and used-car prices up over 26% as buyers settle for pre-owned vehicles instead.
Axcelis' equipment is an important factor in solving these shortages, and it's driving major growth in the company's revenue and profitability:
|
Metric |
2019 |
2021 (Estimate) |
2-Year Growth |
|---|---|---|---|
|
Revenue |
$342 million |
$646 million |
88% |
|
Earnings per share |
$0.50 |
$2.68 |
436% |
Data sources: Axcelis Technologies, Yahoo!Finance.
The company's financial performance is expected to get even better in 2022, with $3.48 in earnings per share (EPS). That represents another 30% growth on top of the incredibly strong 2021 comparable.
Axcelis' stock trades at a forward price-to-earnings (P/E) ratio of 23, based on its expected $2.68 in 2021 EPS and a current share price of $62.50. It's a steep 36% discount to the iShares Semiconductor ETF, which trades at a multiple of 36, suggesting Axcelis has plenty of room for upside.
And if we use 2022 numbers, the stock looks even cheaper -- so investors might do well to build a position going into the new year.
Image source: Getty Images.
Fueling up for growth
Jamie Louko (Confluent): While many investors might not know about this company that could break out, investing in it could pay off immensely. Confluent is trying to put data in motion, allowing businesses to act on data they receive in real time. The standard way to analyze data has been to analyze it at rest, after it's gone to a data warehouse and sat there for a day or a week. However, if a bank wants to detect fraud, the bank's data needs to be processed and analyzed immediately in real time.
An open-source project -- Apache Kafka -- can allow businesses to do this, but the problem is that self-managing your own Kafka platform can be extremely complicated. Businesses that lack the budget, people, or time to manage Kafka on their own can use Confluent to have a fully managed service. Confluent was founded by the three founders who created Apache Kafka, so who better to run a managed Kafka service than the actual creators of Kafka?
Confluent has seen immense success as of late. The company has sequentially increased revenue every single quarter since Q4 2019, and it has over 664 customers spending over $100,000, a figure which grew 48% year over year. It's also comforting to know that Confluent's net retention rate has consistently been over 130% in 2021.
The downside to all of this growth is that the company is fueling it by spending heavily. Confluent's Q3 net loss was $96 million; compare that to its $103 million in quarterly revenue. The company also had negative $20 million in free cash flow in Q3.
This is not without reason, however. Confluent's total addressable market is expected to nearly double from 2021 to $90 billion in 2024, and the company wants to spend now and acquire customers before the market explodes. Confluent has had success with this strategy, and it's looking like it could pay off as the market grows over the next three years.
Confluent is the market leader in this space, beating out other Kafka-managed services because of its visionary leadership. It also beats out non-Kafka services, for Kafka is the industry standard: 70% of the Fortune 500 use Apache Kafka.
Confluent came to be the market leader not just because of its founders, but also because of its gold-standard platform. It offers a complete service that can include connectors, security and governance, and much more, but also a service that can be everywhere. Whether customers run on-premise or fully in the cloud, Confluent can accommodate them. Because of its differentiated product and market leadership, I think that Confluent could see a massive breakout as the market expands over the next few years, benefiting shareholders along the way.
Image source: Getty Images.
Building a better internet
Trevor Jennewine (Cloudflare): Cloudflare specializes in cloud computing. Its global network spans 250 cities across 100 countries, offering 100 terabits per second (Tbps) of bandwidth capacity. It also interconnects with 10,000 other networks, putting its technology less than 50 milliseconds away from 95% of internet users worldwide.
That tremendous scale powers Cloudflare's product portfolio -- a range of services aimed at accelerating the performance, reliability, and security of the internet. For instance, Cloudflare Workers is a serverless platform that allows developers to build fast, scalable applications, while eliminating the need for costly on-site hardware.
On that note, Cloudflare recently partnered with Nvidia, bringing the chipmaker's artificial intelligence tools to its platform. Developers can now build AI-powered applications using Nvidia frameworks, then run those workloads (on Nvidia hardware) across Cloudflare's global network. And that's just one new feature. Cloudflare is continuously innovating and upgrading its products, and that strategy has made it a serious contender in the cloud computing industry.
Case in point: Management believes its Workers platform is over 200% faster than Amazon's (NASDAQ:AMZN) Lambda@Edge, a competing product. Likewise, Forrester Research recently recognized Cloudflare as the leader in edge development, citing a better product and a stronger growth strategy than any other vendor. In fact, it outranked Amazon, Microsoft, and Alphabet's Google by a wide margin -- though Amazon is a titan in the cloud industry, and the breadth of its platform is unparalleled.
But Cloudflare's ambitious growth strategy is paying off, as evidenced by the company's strong financial performance. Over the past year, its customer base grew 31% to 132,390, and the average customer spent 24% more. That compounding dynamic translated into revenue of $589 million over the past 12 months, up 51% from the prior year.
I think Cloudflare can maintain that momentum. The company values its addressable market at $86 billion by 2022 -- 140 times what it generated in revenue over the past year. And Cloudflare's founder-led management team has demonstrated its ability to execute on growth opportunities on countless occasions. For example, the company recently launched R2 Storage, a cheaper version of Amazon's S3 storage. All bravado aside, that product provides the storage capacity Cloudflare's clients need to build applications and websites, and it's a great example of the company's innovation engine in action.
For all of those reasons, this breakout growth stock looks like a smart buy.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
"right" - Google News
November 22, 2021 at 07:45PM
https://ift.tt/3oOztHm
3 Breakout Growth Stocks to Buy Right Now - Motley Fool
"right" - Google News
https://ift.tt/32Okh02
Bagikan Berita Ini
0 Response to "3 Breakout Growth Stocks to Buy Right Now - Motley Fool"
Post a Comment