Please ensure Javascript is enabled for purposes of website accessibility

Are You a Growth Investor? Check Out These 3 Tech Stocks Right Now

By Chris Neiger, Danny Vena, and Brian Withers – Aug 23, 2020 at 8:15AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

These fast-growing tech companies are just getting started.

Despite the coronavirus's effect on economies around the world, the tech sector has largely boomed since the pandemic began. Even large, established tech giants like Apple have seen their share prices spike since the beginning of the year. But there's also a lot of smaller, fast-growing tech stocks that are surging as well. 

Take DataDog (DDOG -1.83%), Alteryx (AYX -1.18%), and Fastly (FSLY 1.99%), for example. Demand is booming for the products and services these tech companies offer, and investors would be wise to take notice now. Here's why. 

A small white rocket with arrows around it on a blue background.

Image source: Getty Images.

DataDog: the cloud operator's best friend

Danny Vena (DataDog): With the pandemic as a backstop, there's has been a notable acceleration in the adoption of cloud computing, which makes work systems easy to access from anywhere. As many employers shifted their focus to remote work and employees began to work from home, it became more important than ever that cloud-based systems stayed up and running with a minimum of downtime. The decentralization of IT staff -- now working out of their homes -- made an already challenging job even more difficult.

DataDog was there to answer the call. The cloud-native company provides near-real time analytics and monitoring services through the use of a unified data platform that monitors a vast array of cloud operations, including servers, databases, tools, and services, and detects problems before they result in critical and costly outages. Not only that, the analytics can help identify the source of the problem to help keep it from recurring.

Business is booming. For the second quarter, DataDog reported revenue that grew 68% year over year, decelerating slightly from the 87% gains it delivered in the first quarter. The company also generated a small profit for the second consecutive quarter, which is impressive, considering the platform-as-a-service (PaaS) company only went public less than a year ago. This outstanding performance has made DataDog a hot commodity with investors, who have driven the stock price to triple-digit gains so far in 2020.

It isn't just the financial metrics that are impressive. DataDog's customer base continues to expand, with large, more lucrative enterprise businesses leading the charge. Customers representing annual revenue in excess of $100,000 grew to 1,015, up from just 594 in the year-ago quarter.

Not only that, once customers experience the benefits of DataDog's services, they tend to stick around. The company reported a dollar-based retention rate -- which measures the level of spending by existing customers -- of over 130% for the 12th consecutive quarter. Put another way, existing customers were spending 30% more over the past year than they did in the 12 months prior.

DataDog also recently completed the coveted Federal Risk and Authorization Management Program (FedRAMP) certification process for low-impact software-as-a-service. While that's a mouthful, it means U.S. federal government departments and agencies can now use DataDog's analytics and monitoring services to watch over their cloud operations, giving the company access to potentially lucrative government contracts.

This all bodes well for the company's future and also helps to illustrate why those looking for an intriguing growth stock should take DataDog for a walk.

A person working on a computer.

Image source: Getty Images.

The coronavirus doesn't reduce the need for data analytics 

Brian Withers (Alteryx): Growth investors have loved Alteryx's 69% compound annual revenue growth over the last three calendar years. Coming into 2020, it looked like the trend would continue. The data analytics specialist posted a solid 43% top-line gain in the first quarter, but that was before the impacts due to the coronavirus were fully realized. Roll forward 90 days and its second-quarter year-over-year growth dropped to 17%. Management projected an 11% gain for the full year, indicating that growth during the second half of the year would be minimal. As a result, the stock dived over 30%,  and some investors are wondering whether the data analytics specialist has lost its mojo. I'm here to tell you that isn't the case at all. This pullback offers a great chance for patient growth investors to buy into a long-term trend at a discount. 

Why am I so confident? Because I know how hard the data analyst's job is without these tools. Before I became a writer for The Motley Fool, I spent 30 years working for medium-to-large companies in roles focused on making their operations run better. Having the right metrics and robust data analysis was critical for providing insights for process improvements, cost savings, and better decision-making. I've worked with many data analysts over the years, and much of their time is spent capturing and cleaning data to make it useful, leaving little time for the most valuable part of their job: the analysis. Alteryx changes all that.

Jay Caplan, Coca-Cola's senior business analytics manager, downloaded a trial of Alteryx's Designer software to see if it could deal with a problem he couldn't solve with Excel. Within a couple of hours, he was not only able to solve his data analytics problem, but he was hooked on Alteryx. Word of the tool's capabilities spread, and the company now has several hundred users across its organization. This example demonstrates the power of the land-and-expand strategy Alteryx has relied on for growth. But management knows that companies are tightening their purse strings and may not be as willing to fork out over $5,000 for a year's worth of an individual license. It's ramping up sales of a six-month "adoption" license, which will allow companies to make a smaller financial commitment and give data analyst users enough time to prove the value these tools can bring to the enterprise. The land-and-expand strategy can still work during a pandemic-fueled recession; it just may take a little longer.

With 37% of Global 2000 on its customer list, the opportunity to capture new large organizations as customers is tremendous. Big companies have big data problems, and Alteryx is perfectly suited to help. Its international business represents only 31% of the top-line and grew at a solid 25% year over year last quarter, giving management another lever to drive growth.

The company is continuing to invest in platform innovations during the coronavirus to strengthen its offerings for customers. As companies emerge from the pandemic, the desire to do more with less will be stronger than ever, and Alteryx will be ready. With some patience, growth investors should see this analytics leader get back to growing faster than the big data analytics market's projected 15% annual growth rate.

A young man using a smartphone.

Image source: Getty Images.

Growth as fast as the Flash 

Chris Neiger (Fastly): Investors who missed out on Fastly's meteoric rise this year have been given a second chance to pick up some of Fastly's stock at a cheaper price after its recent share-price slide. Some investors sold off shares following the company's second-quarter results at the beginning of August, but the sell-off was an overreaction. 

Fastly's revenue increased 62% in the quarter to $74.7 million, outpacing analysts' consensus estimate of $71.4 million. Additionally, the company's earnings per share of $0.02 was a huge improvement from its adjusted loss per share of $0.16 in the year-ago quarter. It also beat Wall Street's estimate of a loss of $0.01 per share. 

Despite the revenue and earnings beat, some investors took their gains from earlier in the year and sold off shares, leading the stock to fall 9% since the beginning of August. But the company's earnings and sales growth in the midst of a U.S. recession and global pandemic prove the resilience of Fastly's business. Consider that the company added 114 new customers in the quarter. As more companies look to Fastly to improve their apps, video, and website speeds, the company is poised for further growth.

Fastly's management was so optimistic about its growth opportunities following the second quarter that it raised its full-year revenue guidance to a range of $290 million to $300 million, up from a range of $280 million to $290 million. 

For investors looking for a fast-growing tech company that still has lots of growth ahead of it, Fastly looks like a good bet. The company's tech is helping companies speed up their online services. As people spend more time online during the pandemic, Fastly is in demand more than ever. 

Brian Withers owns shares of Alteryx, Apple, and Coca-Cola. Chris Neiger owns shares of Apple. Danny Vena owns shares of Alteryx, Apple, Datadog, and Fastly. The Motley Fool owns shares of and recommends Alteryx, Apple, Datadog, and Fastly. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Alteryx Stock Quote
Alteryx
AYX
$43.46 (-1.18%) $0.52
Fastly Stock Quote
Fastly
FSLY
$8.72 (1.99%) $0.17
Datadog Stock Quote
Datadog
DDOG
$73.47 (-1.83%) $-1.37

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
356%
 
S&P 500 Returns
118%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.