Overpriced. Overhyped. Unsustainable momentum.
You've probably heard people say these kinds of things about hot growth stocks. For some stocks, the descriptions are applicable -- but not for all of them. Some hot growth stocks deserve the attention that they attract from investors and their premium valuations. Why? Their business models and growth prospects are simply that good.
Three hot growth stocks that I'd buy right now are Guardant Health (NASDAQ:GH), MongoDB (NASDAQ:MDB), and The Trade Desk (NASDAQ:TTD). Here's why I think these stocks still have plenty of room to run.
1. Guardant Health
Guardant Health conducted its initial public offering (IPO) in October 2018 and has absolutely skyrocketed since then. Shares are up nearly 170% over the last nine months.
Investors have flocked to Guardant Health because of the tremendous potential for its liquid biopsy products. Liquid biopsies are blood tests used to detect cancer. Instead of using an invasive procedure to obtain cancerous tissue, liquid biopsies work by spotting tiny fragments of DNA that have broken away from tumors or sometimes intact tumor cells that have separated from the main tumor.
Guardant Health's Guardant360 liquid biopsy matches advanced-stage cancer patients with the most applicable treatment. Its GuardantOmni product helps drugmakers screen patients for clinical trials of cancer drugs. The company's latest product is its Lunar DNA tests for detecting early-stage cancer and cancer recurrence. For now, the Lunar tests can only be used by researchers.
How big is the potential market for these liquid biopsies? Guardant Health thinks there's a $6 billion opportunity in the U.S. alone for Guardant360 and GuardantOmni. But that's practically chump change compared to the $33 billion estimated U.S. market for the Lunar tests.
With a market cap of around $7.4 billion, Guardant Health doesn't have to capture all that much of its potential market to keep its sizzling momentum going. I don't own this stock yet, but it's at the top of my list to buy.
MongoDB's share price has more than tripled over the last 12 months and is up more than 80% so far this year. These huge gains have given the company a market cap of more than $8 billion despite MongoDB continuing to lose money. That doesn't bother me a bit, though.
The company is a leader in what are called NoSQL databases. Most databases used by businesses were designed decades ago for structured data organized in rows and columns. MongoDB, though, designed its database for today's world of both structured and unstructured data.
MongoDB also uses an open-source model, which means that developers can see the source code for its database software and even make changes to it. This model has been a winner for the company. MongoDB offers a free basic version of its open-source database that initially attracts developers. They often then move up to the premium version, which has more features. The company's database is such a hit that MongoDB's revenue soared 78% year over year in the last quarter.
But MongoDB hasn't even scratched the surface of its potential. The company has less than 1% penetration in the addressable database market. I expect MongoDB will continue to grow at a rapid pace as it captures more market share.
3. The Trade Desk
The Trade Desk stock has nearly doubled so far in 2019. That makes me very glad that I scooped up shares of this fantastic company in the early part of the year. My only regret is that I didn't buy The Trade Desk sooner. It's up more than 670% since its IPO in September 2016.
Although its name might prompt thoughts of a stock-trading system, The Trade Desk focuses on the advertising market. The company's technology enables ad buyers to quickly and easily purchase digital advertising across a wide spectrum of outlets.
The Trade Desk is disrupting the advertising industry, which was accustomed to long and drawn-out negotiations over ad buys. The company's revenue growth reflects how well the disruption is going. The Trade Desk reported year-over-year sales growth of over 41% in the first quarter, which is typically a sluggish period for the ad industry.
There are plenty of reasons why The Trade Desk's momentum should continue. Digital advertising is overtaking traditional print and broadcast television advertising. Programmatic advertising, which uses algorithms to automate ad buying, is the wave of the future. The Trade Desk is at the front and center of these trends.