2022 is off to a trying start for many investors, especially because of the massive opportunity to invest in growth stocks. Inflation appears to be much more than transitory, and the Federal Reserve is necessarily turning more hawkish. As a result, several growth stocks have gone on sale for investors with a long-term vision.
Two stocks that are ripe for the picking are Alphabet (NASDAQ:GOOG) and CrowdStrike (NASDAQ:CRWD). Google has just posted tremendous results for 2021 and still has a long runway for growth. CrowdStrike operates in the red-hot cybersecurity industry and currently trades well down from its 52-week high.
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Google earns the bulk of its revenue through advertising sales on Google search and YouTube and from Google Cloud. Google Cloud provides customers with infrastructure and platform services, which gives the company a long runway for continued growth. According to Yahoo, the migration of companies to the cloud and the need for expanded cloud services could push the total global market to over $900 billion by 2026.
Google's cloud revenue rose 47% in 2021. On the advertising front, there is little doubt that Google is the go-to source for search advertising. It is a must for advertisers to appear on Google's platform, and this demand will sustain higher prices and volume into the future. Despite being a mature mega-cap, Google is still growing fast.
On Feb. 1, 2022, Google reported fantastic earnings and made another exciting announcement regarding a stock split. First, revenues skyrocketed in 2021 after COVID-19 tempered growth in 2020. Revenues came in at $257.6 billion, a gain of 41%, as shown below. Growth in 2020 was stunted as advertising scaled back spending due to the pandemic; however, that spending came back full throttle in 2021.
Data Source: Alphabet. Chart by author.
Another positive note in 2021 is the increase in profitability. After posting an operating margin of just 23% in 2019 and 2020, Google posted an operating margin of 31% in 2021. That allowed the company to bank $78.7 billion in operating income and $91.7 billion in operating cash flow.
Google is a shareholder-friendly growth stock. The company supports shareholders by executing stock repurchases throughout the year. This reduces the number of shares available, thereby increasing the size of each shareholder's stake. The buybacks also increase earnings per share. Google earned $112.20 per diluted share in 2021, up 91% from 2020.
A 20:1 stock split was also announced during the earnings presentation. This is exciting news for some investors intimidated by the company's share price above $2,900. It will also allow for more options trading. Options are traded in blocks of 100 shares; therefore, the high current price makes this problematic for average investors.
CrowdStrike
CrowdStrike is a cybersecurity company that uses cloud-based solutions to detect and stop network breaches. The company's platform protects endpoints and cloud assets and provides threat intelligence and identity protection, among other solutions. Cybersecurity is one of the gravest threats governments and businesses face daily, and cybersecurity will be in high demand for the foreseeable future.
The evolution of the work-from-home trend will also continue to benefit CrowdStrike. Because of this, CrowdStrike is estimating it will have a total addressable market of $67.1 billion by 2024. That gives the company a long runway for growth -- and it is growing rapidly.
Customers are lining up for CrowdStrike's services. The customer base grew to 14,687 as of Q3 fiscal 2022, amounting to a 75% increase year over year (YOY). This has also allowed annual recurring revenue (ARR) to breach the $1.5 billion mark in Q3 fiscal 2022. The YOY growth in ARR is awe-inspiring at 67%.
CrowdStrike has other highly encouraging metrics as well. For instance, the company consistently posts a dollar-based net retention rate surpassing 120%. This stems from customers adding additional modules and spending more with the company each year -- critical to CrowdStrike sustaining its growth. The company currently spends much of its revenue on sales and marketing in a race to acquire as many customers as possible in the competitive cybersecurity arena. This metric shows the spending is worth the investment.
So far, as shown below, CrowdStrike's stock has been decimated in 2022, now sitting nearly 40% down from its 52-week high. This could offer investors an attractive entry point in the high-growth stock.
Both Google and CrowdStrike operate in fast-growing sectors and are in high demand. One is an established mega-cap, while the other is an up-and-coming enterprise with loads of potential. Both picks offer investors an opportunity to outpace the market for many years to come.
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.
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February 09, 2022 at 09:26PM
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2 Top Growth Stocks to Buy Right Now and Hold for the Long Term - The Motley Fool
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