Many high-growth stocks soared over the past year as investors flocked to companies that could continue to grow through the pandemic. Over the past couple of months, however, technology stocks have taken it on the chin as some investors turned their gaze to "recovery stocks," or companies they believe will benefit as the world begins to wind down pandemic-related restrictions.
As the result of that rotation, some of the hottest IPOs of the past year have tumbled, with their stock prices down 40% or more off their previous highs as of this writing. That has created a significant buying opportunity for investors who missed the boat the first time around. If you're looking for bargains among companies that have gone public over the past year, here's why Palantir Technologies (PLTR -6.39%), Snowflake (SNOW -0.91%), and DoorDash (DASH 0.64%) should be at the top of your list.
Palantir: Down 44%
Palantir Technologies is the brainchild of PayPal Holdings co-founder and Silicon Valley visionary Peter Thiel. He created a cloud computing platform that breaks down the silos between government intelligence and defense agencies, and bringing the power of artificial intelligence (AI) to bear in the War on Terror. Applying the company's sophisticated algorithms to these disparate sets of data helps extract actionable information that could stop the next attack in its tracks. But that's just the beginning.
The AI used on Palantir's platform proved equally skilled at mining large data sets from corporate sources. As a result, the company developed Foundry, a platform that caters to the unique needs of enterprise businesses. Even though it went public just last year, Palantir has been honing its craft for more than two decades, and it has a treasure trove of patents to protect its proprietary processes.
The results paint a compelling picture. Palantir's revenue grew 47% in 2020, gaining a host of new contracts from government agencies and enterprise businesses alike. At the same time, its net loss doubled. There are heavy up-front costs of installing its system, requiring a team of engineers, but once it's up and running, it's highly unlikely that users will switch to another provider, particularly since the average contract length is currently 3.6 years. This puts Palantir in the driver's seat for the long haul.
Its customer metrics are equally compelling. The average revenue from the company's top 20 customers grew 34% year over year, while those generating $1 million or more in revenue grew 32%. Furthermore, those contributing $5 million or more grew 54%, while those generating $10 million grew 50%. This illustrates the stickiness of its platform, as customers keep coming back to the well. Palantir's management estimates the company's total addressable market at roughly $119 billion. Considering its revenue clocked in at just over $1 billion in 2020, this leaves a massive runway ahead.
Snowflake: Down 43%
You can tell a lot about a business by the company it keeps. So when Snowflake attracted the attention of Warren Buffett's Berkshire Hathaway and salesforce.com when it went public, my interest was piqued. Snowflake revealed that each company would invest $250 million in conjunction with its IPO, while Berkshire would pick up an additional 4 million shares from insiders as well.
Snowflake combines data warehousing with data analysis that gives users a one-two punch of actionable insights. Its cloud-native platform can process both structured and unstructured data, using data science and machine learning to make sense of it all.
It you're looking for confirmation that Snowflake is a buy, look no further than the company's recent results. For the 12 months ended Jan. 31, revenue grew 124%, while its gross margin continued to improve. Snowflake's losses climbed 54%, as the company worked to build out its client base and leverage its existing platform. Snowflake's remaining performance obligation -- which consists of future revenue that is under contract but has not yet been recognized -- grew a massive 213%.
The company continues to add customers at a frantic pace. Total customers grew 73% year over year, while those with over $1 million in revenue grew 88%. Perhaps the most impressive customer metric is Snowflake's dollar-based net revenue retention rate of 168%. Put another way, existing customers spent 68% more than they did during the prior year.
Given Snowflake's explosive growth, it's worth noting that the company has a large and growing addressable market. Snowflake's management estimates its opportunity at roughly $95 billion, with even more to come. Given the company's total revenue of $592 million, the road ahead is long and filled with opportunity.
DoorDash: Down 40%
Food delivery services came into their own during the pandemic. Now, 47% of all Americans have ordered from a food delivery service, up from 37% a year ago. The leader by a wide margin was DoorDash. The company accounted for roughly half of all food deliveries in the U.S. last year and continues to command the largest share of the market.
The company's dominance is evident in its astronomical growth. DoorDash reported revenue that grew 226% in 2020 and growth that continued at that same pace in the fourth quarter. Gross profit soared 311%, and the company also trimmed its net loss by 31% year over year. It's worth noting that the bottom-line results would have been even better if not for one-time stock compensation expenses related to DoorDash's December IPO. The company teetered on either side of profitability in both the second and third quarters of 2020.
The underlying fourth-quarter performance that helped drive its positive results was equally impressive. Total orders grew 233%, while gross order volume climbed 227%. DoorDash also gained market share in the U.S. and increased its customer engagement with each new monthly cohort in 2020. This resulted in higher retention rates, order frequency, and spending per order than in previous years. The company is also expanding beyond its food delivery roots to other areas, including convenience and grocery.
DoorDash has a large and growing addressable market. The company cites the nearly $303 billion in off-premises restaurant spending as its opportunity. For context, the company generated $2.89 billion in revenue last year, illustrating the magnitude of the opportunity that remains.
Every rose has its thorns
It's worth noting that none of these companies is yet profitable, and even after the recent price declines, these high-growth stocks still aren't cheap using traditional valuation metrics. Snowflake, Palantir, and DoorDash are selling for 45, 27, and 11 times forward sales, respectively -- when a good price-to-sales ratio for a stock is generally between 1 and 2.
That said, investors have thus far been willing to pay up in anticipation of the impressive top-line growth and the profits yet to come. Given the massive opportunity ahead for each of them, now is the time to buy these disruptive upstarts while they're still on sale.