Are you looking for a top growth stock to add to your portfolio? You don't need to settle for businesses growing at 20% or even 30%; there are some heavy hitters out there that are smashing their sales numbers this year due to stay-at-home trends amid the pandemic. And some of them are poised for even more growth.
Moderna (NASDAQ:MRNA), Zoom Video Communications (NASDAQ:ZM), and Etsy (NASDAQ:ETSY) are three such stocks. All are coming off incredible quarters in which they generated more than double the sales from the same period a year ago. The exciting part: These businesses have more addressable markets to capture, technological improvements to be made, and sales to realize.
Alright, you caught me. This biotech's top line has been soaring this year not due to an increase in product sales, but due to a sharp increase in funding for its COVID-19 vaccine, mRNA-1273. Moderna's revenue of $157.9 million in the third quarter, which ended Sept. 30, is nearly 10 times the $17 million that the company reported in Q3 last year. The increase in revenue is primarily attributed to grant revenue and money that Moderna has received from the Biomedical Advanced Research and Development Authority (BARDA), an office within the Department of Health and Human Services (HHS), for the development of its experimental vaccine for COVID-19.
However, those numbers could grow significantly larger next year. On Nov. 16, the company gave an interim update on phase 3 clinical trials, which showed the vaccine candidate was 94.5% effective at preventing coronavirus infection.
The positive results mean that mRNA-1273 could be well on the way to obtaining emergency use authorization (EUA) from the U.S. Food and Drug Administration (FDA). And if it's among the first COVID-19 vaccines to get the go-ahead from the government, it'll lead to windfall sales for the company. The vaccine could bring in revenue in excess of $5 billion annually for Moderna, according to one analyst at investment bank, Jefferies Group.
That would make the revenue Moderna generates from external funding look like a drop in the bucket. However, with no other products to fall back on right now, Moderna investors are taking on significant risk, especially if mRNA-1273 doesn't obtain FDA approval or capture the market share that analysts are projecting. While there are potential sky-high returns to be earned from investing in Moderna, investors also need to be aware that the coronavirus vaccine manufacturer is still anything but a risk-free investment.
Since the start of the pandemic, you've probably heard the phrase, "Zoom later?" at least once. The company's video-conferencing software makes it easy to communicate with family, colleagues, and customers. It's been a staple product for many businesses during the pandemic.
For Zoom's Q2 2021, which ended July 31, the company reported sales of $663.5 million, crushing the prior-year period's top line of $145.8 million. The number of business customers with more than 10 employees, a key metric for the company, hit 370,200 in Q2, a 458% increase from 2019.
Even though a COVID-19 vaccine is just on the horizon, it could still be well into the new year before people resume pre-pandemic activities. Zoom could continue to grow at a high rate while people are still staying at home. Even when the coronavirus is no longer a concern, the use of video chat could be here to stay, as companies look to continue offering employees the ability to work remotely or want to cut down on travel expenses. According to estimates from Global Market Insights, the market for video conferencing will rise at a compounded annual growth rate (CAGR) of 19% until 2026, where it'll reach a value of $50 billion, up from just $14 billion in 2019. Zoom is very well poised to capture a large portion of that value.
Zoom is projecting sales for its full fiscal year to reach just under $2.4 billion -- nearly four times the $622.7 million in revenue that it reported in fiscal 2020. The stock has used 2020 to prove that it could generate terrific returns for investors for years to come. Plus -- it's a more attractive buy now that it's come off the all-time highs (close to $580 per share) it reached last month. The stock trades for $440 as of Nov. 20.
It's no surprise that Etsy has handsomely benefited from the growing online shopping trend. Its marketplace offers quality handcrafted items that are more unique than the items you'll typically find on eBay or Amazon.
In the third quarter, Etsy's sales came in at $451.5 million, up 128% year over year. The New York-based company reported a 42% increase in the number of active sellers and a 55% increase in active buyers. A key reason behind its strong numbers is customer retention. In its earnings release, Etsy noted, "Of the 138 million all time buyers on the Etsy marketplace, approximately 50% have now purchased at least once in the last year."
Etsy continues to make its marketplace more intuitive by using machine learning to prioritize helpful and informative reviews. It has also launched listing videos to give sellers a better way to advertise their products.
With many repeat customers on its platform and continued investment in improving its experience for sellers and buyers, Etsy is likely to continue growing even if the negative effects of the pandemic abate next year. For the fourth quarter, Etsy expects sales to fall between $459 million and $513 million, which would put its year-over-year growth rate in Q4 between 70% and 90%.
Don't let price deter you from investing in these top growth stocks
Moderna, Zoom, and Etsy all look like they're poised to continue producing some strong sales numbers for the foreseeable future. However, one problem with growth stocks is that they're often very expensive because excited investors can drive up their share prices. Year to date, they've all more than doubled in value, soaring well past the S&P 500.
Because Moderna's full potential revenues haven't yet bene realized, let's use the forward price-to-sales multiple to determine which stock you're paying more of a premium for today based on its future expected performance:
None of these stocks is terribly cheap when compared to the S&P 500, where the average stock trades at just two times revenue. However, when it comes to hunting down growth stocks, you're likely going to pay a premium for what a company might achieve in the future.
Etsy appears to offer investors the best value right now, but if Moderna's mRNA-1273 vaccine gets the green light from the FDA, the healthcare stock could look like a bargain in a year or two as its sales take off. And as Zoom continues growing at an incredible clip, we could also look back on today's price and think it was a steal.
If you're a growth investor, you may want to consider adding all three into your portfolio to benefit from three different trends as they can set you up for some strong returns over the long term. If you focus too much on price and wait too long for their values to drop, you could miss out on some great long-term opportunities.