Tech stocks can be great long-term investments -- younger companies might eventually generate multibagger returns, and mature ones can be solid income generators. However, some tech companies can be tough to crack because of confusing business models and opaque growth metrics. Today, a trio of our Motley Fool investors will cut through the noise for three promising tech stocks: Domo (DOMO 1.19%), iRobot (IRBT 1.67%), and Wayfair (W 8.46%).
A disruptive newcomer
Leo Sun (Domo): Domo went public at $21 per share last July, and the stock now trades in the low $40s. Its cloud-based OS helps executives manage their entire companies from their smartphones with a suite of real-time data-management tools.
Employees can also access the platform's analytics tools to make business decisions, and its expanding ecosystem includes new artificial-intelligence tools for answering questions, tools for optimized media campaigns, and an internal app store.
Domo serves over 1,500 organizations, and its number or large enterprise customers -- who generate over $1 billion in annual sales -- rose 19% year over year to 447. It generates roughly half its revenue from those big customers.
About 80% of Domo's annual recurring revenue comes from customers who pay over $50,000 in annual recurring revenues. Last quarter, its billings rose 26% annually, and its revenue grew 31% to $39.4 million.
Throughout its first three public quarters, Domo's subscription revenue consistently accounted for over 80% of its revenues, and the gross margin for those services expanded sequentially to 74% in the fourth quarter. It also cut its operating expenses 11% annually during that quarter and narrowed its non-GAAP loss from $39 million a year ago to $29 million.
Analysts expect Domo's revenue to rise 22% this year as it cuts its net loss in half. That consistent growth, along with Domo's disruptive business model, its low market cap of $1.1 billion, and its reasonable forward price-to-sales ratio of 7, indicate that it could climb much higher this year.
Check out the latest earnings call transcripts for Domo, iRobot, and Wayfair.
My biggest personal tech bet
Jason Hall (iRobot): As of this writing, iRobot is my third biggest investment by both cost basis and market value, and it's by far the tech stock I've invested the most money in. Furthermore, I've been incredibly lucky in my timing, with the stock up more than 80% since I first bought shares a couple of years ago.
And while that might sound like a stock that's ideal for profit-taking, my analysis says iRobot is worth buying today. Why's that the case? In short, because iRobot has dominant market share in its primary category, is growing sales and earnings from that segment rapidly, and has substantial optionality to expand its robot products across multiple consumer categories in the years ahead.
iRobot grew sales 24% last year, even as competition intensified in the robot vacuum and floor cleaning category, while also reporting 50.8% gross margin and better earnings than investors had expected. Furthermore, the company also announced its biggest foray beyond in-home floor cleaning, with its wireless Terra robotic mower set to disrupt the $4 billion-plus lawnmower market starting later this year.
Simply put, the company has a massive head start over everyone else in the consumer robot business, and that head start is set to expand as the company delivers new, novel products that make consumers' lives easier by accomplishing mundane and time-consuming tasks.
With a market cap of just over $3.2 billion and annual sales that just passed $1 billion last year, iRobot is still a relatively small company. But the prospects of putting robots in billions of households around the world over the next 20 years makes it worth buying now and holding for the long term.
Click to buy
Demitri Kalogeropoulos (Wayfair): Shares have soared by over 50% so far in 2019, but Wayfair has more room to rise in the next few years. The e-commerce specialist reported blockbuster holiday-season results in late February, highlighted by a 41% sales spike as it stole market share from physical home-furnishings retailers and from online rivals such as Overstock (OSTK 0.30%). These competitions didn't pressure pricing, either, and in fact Wayfair's gross profit margin landed at 24% of sales, a bit higher than management had predicted.
The company has been operating its U.S. business at near breakeven as it spends aggressively on building out a proprietary delivery infrastructure and securing a dominant hold on key product niches. And at the same time, Wayfair is applying what it's learned at home to major international markets, which management sees as attractive given the fragmented status of the home furnishings industry.
These moves are likely to keep the business from posting net profits again 2019. However, it's not hard to see how Wayfair's premium global positioning, with millions of highly engaged users and a world-class fulfillment platform, could soon start delivering robust earnings growth once the company steps back from this period of intense investment in the business.