2 hypergrowth tech stocks to buy in 2022 and beyond
If you keep an eye on the investment world, you’ve probably noticed that the market has recently fallen on growth stocks. Your own wallet might even feel the pressure.
With inflation at the highest level in decades, the Fed preparing to raise interest rates and the economic outlook clouded by pandemic-fueled uncertainty, multiple factors are hurting growth stocks. But here’s the silver lining: there are companies with incredible long-term potential that are now much cheaper amid market turbulence. Let’s take a look at two hypergrowth stocks worth investing in right now.
When it comes to ensuring the proper functioning of web applications, Cloudy (NYSE:NET) is one of the largest companies in the world. Technology leader provides Content Delivery Network (CDN) and Domain Name Server (DNS) services, protection against Distributed Denial of Service (DDoS) attacks and a variety of other cloud-based services that help keep Internet communications fast and efficient.
The company’s momentum has been phenomenal, with sales growing at a compound annual growth rate (CAGR) of 50% from 2016 to 2020. And performance has been most impressive in the reported quarters of 2021.
Sales jumped 51% year-over-year in the third quarter, and the company increased its number of large customers (those billed more than $100,000 per year) by 71%. The company also posted a very impressive gross margin of 78.3% during the period.
As the number of web applications and connected devices accessing them continue to grow rapidly, the long-term demand for Cloudflare’s services is very favorable. More than ever, web applications are critical to business success, and they will become even more so.
Cloudflare recently published a report stating that ransomware DDoS attacks saw a massive increase in the fourth quarter, and it’s not just tech and web-focused businesses that are being affected. The company said the manufacturing industry experienced more DDoS attacks than any other during the period, with results to be released on February 10.
Despite Cloudflare’s very strong performance and a favorable demand outlook, its valuation has been hammered as the market has moved away from cloud software companies. The stock is down about 62% from its peak, and the company now has a market capitalization of about $28.5 billion. Although its forward price/sales multiple of around 29 times might be daunting at first glance, the company’s rapidly growing sales and fantastic margins indicate significant profit potential and that Cloudfare is equipped with a Stellar long-term growth.
MercadoLibre (NASDAQ: MELI) stands out as a leading stock to benefit from two massive trends in the Latin American market: e-commerce and fintech services. Economic and political instability is currently fueling bearish sentiment on many Latin American stocks, but the region still has intriguing long-term prospects, and MercadoLibre is poised to succeed.
Inflation in many Latin American countries is high, with Citigroup estimating an overall inflation rate of 10.6% in 2021 and Brazil and Argentina posting inflation of 10.7% and 52%, respectively. Economists polled by Bloomberg estimate that inflation in the region will hit around 10.4% this year, and rising prices combined with lingering challenges from the coronavirus pandemic have added to political tensions and division.
Despite an unfavorable macroeconomic context and increased investor caution, MercadoLibre continued to post good results. Its main e-commerce and fintech services segments grew sales 69% and 61.7%, respectively, year-over-year. Overall revenue climbed 66.5% year over year last quarter, and operating profit for the period jumped 93% to $160.4 million.
MercadoLibre stock is now down about 48% from its peak last January. It has a market capitalization of around $52 billion and is trading at 5.5 times this year’s expected sales and 122 times expected earnings. This valuation certainly generates strong performance in the years to come, but the good news is that the market opportunities for e-commerce and fintech services in Latin America are enormous.
The region’s retail e-commerce market alone is expected to grow from $85 billion in sales in 2021 to $160 billion in sales by 2025 according to a report by Statista, and the Boston Consulting Group estimates that revenue payments will have grown at a compound annual growth rate of 8.3% from 2020 to 2025. Both of these service industries are still at much earlier stages of growth compared to what they are in the United States, in Western Europe and China, and MercadoLibre is poised to be a big winner as they evolve.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging 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 wealthier.