Lately, the stock market has been on a wild ride, triggered by the rise in the yield curve and the rotation of investors from growth stocks to value stocks. It is almost impossible to properly time the market in a context of such high uncertainty. But such periods of uncertainty also present an opportunity – to acquire fundamentally strong stocks at big discounts.
To take advantage of this opportunity, investors should opt for stocks that follow structural trends, which in turn translates into a strong chance of strong long-term returns. If you are looking for such choices and have an extra $ 5,000 that is not needed to pay bills or for other contingencies, then Square (NYSE: SQ), Datadog (NASDAQ: DDOG), and Dazzling genetics (NASDAQ: FLGT) may be the right choice for you.
The Fintech Square player has become a force to be reckoned with in the financial services arena. The company provides point-of-sale devices and solutions, capital, analytics and other business services to merchants for a fee. The company also caters to customers through its peer-to-peer payment platform, Cash App.
The seller ecosystem is a bigger business segment for Square. Despite the pandemic negatively affecting physical retailers, the company processed a seller’s gross payment volume (GPV) of $ 103.7 billion in fiscal 2020, down 13.6% year-on-year. the other. However, the company expects the headwinds of the pandemic to start easing by the end of March 2021.
Square no longer relies solely on small businesses – it makes seller activity more resilient to economic uncertainties. In the fourth quarter, the biggest sellers with GPVs above $ 0.5 million accounted for almost 60% of the company’s total GPV sales.
Cash App is a smaller but much faster growing part of Square’s business. Monthly active users of the peer-to-peer platform have jumped 50% year on year to 36 million in December 2020. Individuals use Cash App to perform various financial tasks such as direct deposit and money transfer. ” money in their bank accounts, to invest in stocks and Bitcoin (CRYPTO: BTC), and for the use of the Square Cash Card (debit card linked to the Cash App account). Square’s revenue from the Bitcoin exchange jumped 785% year-over-year to $ 4.6 billion in fiscal 2020.
Square is trading at just over 110 times futures earnings. These ratings are pretty steep. However, Square estimates its total addressable market at over $ 160 billion. The company has set its market penetration at less than 3%. Considering the company’s revenue for fiscal 2020 of $ 9.5 billion, the market share is only 6%. The company also posted a GAAP profit of $ 213 million in fiscal 2020. With a huge market opportunity, this profitable fintech has a lot of potential to grow over the next few years.
Datadog, a cloud-native observability company, provides software solutions to monitor an organization’s IT infrastructure, networks, applications, user experiences, log management, incident management and security – on one unified and real-time dashboard. The company has been a major beneficiary of the corporate digital transformation and the pandemic-induced cloud migration – an age-old trend that will continue to be a positive wind in the long term. While that hot stock has cooled after the February tech sell-off and weaker-than-expected FY2021 profit forecast, the company’s offerings are still in high demand.
In 2020, the number of Datadog customers paying over $ 1 million in annual recurring revenue (ARR) increased 94% to 97, while those paying ARR over $ 100,000 increased 46% to 1,253. Datadog’s net dollar retention rate (a metric to gauge new revenue from cross-selling to existing customers) has been 130% for fourteen consecutive quarters, which also includes the fourth quarter. At the end of the fourth quarter, 72% of customers were using two or more of the company’s products, while 22% were using four or more. The company’s “landing and expanding” model appears to have created a loyal following.
Last year, Datadog’s revenue soared 66% to $ 603.5 million, non-GAAP net income to $ 71.6 million, and free cash flow to $ 83 million. For fiscal 2021, the company has guided its revenues to increase year over year from 37% to 38% and non-GAAP net earnings per share to decline year over year from 36% to 54%. However, declining profits is not a major challenge, as Datadog prioritizes revenue growth over short-term profitability.
Trading at nearly 310 times forward earnings, the stock is expensive. However, given that the company fixes its addressable market at around $ 35 billion and is already a dominant player in the field of observability, there is significant potential for the stock to rise further in the years to come. come.
3. Dazzling genetics
I have recommended Fulgent Genetics as a great growth stock several times before and do it again – this genetic technology company that has now become a major player in COVID-19 testing has solid growth potential even after the pandemic. .
Fulgent Genetics made a dream come true in 2020. Revenue grew 1,200% to $ 421.7 million, while GAAP net income improved significantly year over year from a loss of $ 411,000 at a profit of $ 214.3 million. The company processed 4.4 million tests in 2020 – a significant jump from the 60,000 tests in 2019. Fulgent Genetics ended fiscal 2020 with $ 432 million in cash and $ 15.8 million in debt to his record.
Despite the phenomenal results, investors are concerned that revenues from COVID-19 testing will dry up over the next few years, which in turn will have a dramatic effect on the company’s growth trajectory. This concern is reasonable given that most of the growth in fiscal 2020 came from COVID-19 testing activity.
However, the future of Fulgent’s non-COVID testing business – where Fulgent Genetics uses Next Generation Sequencing (NGS) technology to diagnose 5,700 genetic conditions based on mutations in more than 18,000 genes at an affordable price – is now insured.
The company’s notoriety is now increased with customers and payers. Once heavily reliant on cash paying customers, the company has now grown into a networked lab for several regional payers and has forged relationships with national payers. The company’s Picture Genetics platform makes it even more convenient to perform genetic testing – for both COVID-19 and non-COVID conditions – in the comfort of your home.
Fulgent stock prices have already risen over 619% last year and over 82% so far this year. The company is now forecasting a 90% year-over-year increase in fiscal 2021 revenue to $ 800 million, which is a very encouraging forecast on the back of an already strong year. In this context, the company could continue to soar in 2021.