For 13 months, Wall Street has proved virtually unstoppable. Since hitting a bear market bottom on March 23, 2020, the broad-based S&P 500 has galloped higher by 87%, through this past weekend. This handily outpaces the average bounce-back rally from a bear-market bottom and leaves the historic average annual return for the benchmark index eating dust.
Yet even at these lofty levels, Wall Street professionals see value. Based on the consensus one-year price targets of Wall Street analysts, five of the most popular growth stocks offer implied upside ranging from a low of 28% to as much as 56%.
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Shopify: Implied upside of 31%
First up is my absolute favorite software-as-a-service (SaaS) stock, Shopify (SHOP -0.04%). Even after gaining more than 1,000% over the past 3.5 years, Wall Street believes the company's stock offers an additional 31% upside to $1,434 a share over the next year.
Shopify's operating model of providing cloud-based e-commerce solutions to (primarily) small businesses couldn't be in a better place at the moment. Although it was initially hit by the pandemic with virtually all other retail-oriented companies, it quickly became apparent that Shopify's e-commerce platform would be a logical beneficiary as businesses shifted course and pushed online. The result was a 96% increase in gross merchandise value (GMV) transacted across its platform in 2020 to $119.6 billion. Over the past six years, GMV has grown at a compound annual rate of 77.7%.
What's made Shopify tick is both the discovery of the platform by new merchants and the ability to snag worthwhile deals with major retailers. The number of consumers using the platform increased by approximately 52% last year to 457 million. Meanwhile, it partnered with the likes of Walmart and Pinterest to streamline aspects of their online sales platforms.
Shopify isn't remotely inexpensive on a fundamental basis. But if it can continue to grow its GMV at these insane levels, investors will gladly pay a hefty premium to own Shopify stock.
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Teladoc Health: Implied upside of 40%
Telemedicine giant Teladoc Health (TDOC -0.34%) has been exceptionally popular over the past year, for obvious reasons I'll touch on in a moment. According to Wall Street, shares of Teladoc could ascend past $250 over the next 12 months, giving it an implied upside of 40%.
As you can imagine, physicians wanted to keep at-risk people and potentially infected patients out of offices and hospitals if at all possible last year. This led to Teladoc handling almost 10.6 million virtual visits in 2020, up from around 4.1 million in the previous year.
But understand that telehealth is a game-changing healthcare model and not just a one-year wonder because of the pandemic. It's far more convenient for patients, allows physicians to keep closer tabs on at-risk patients, and is usually billed at a lower rate than office visits, which health insurers love. These advantages are exactly why Teladoc's sales grew by an average annual rate of 74% between 2013 and 2019.
Furthermore, Teladoc has a new toy, so to speak: It acquired leading applied health signals company Livongo Health in early November. Livongo leans on artificial intelligence to send tips and nudges to patients with chronic illnesses. These nudges help patients make behavioral changes that result in their leading healthier lives. The addition of Livongo makes Teladoc a veritable no-brainer buy.
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Snowflake: Implied upside of 28%
Another high-growth stock with abundant upside according to Wall Street professionals is cloud data warehousing company Snowflake (SNOW 0.13%). After recently retracing to an all-time low, analysts see Snowflake gaining up to 28% to almost $301 a share over the next 12 months.
As I alluded to with Shopify, we're witnessing a big push by businesses online and into the cloud, which has been a boon for most cloud infrastructure companies. Despite the worst economic downturn in decades, Snowflake grew its product revenue by 120% to $553.8 million in fiscal 2021. Although it's losing a lot of money at the moment, the services Snowflake offers should yield juicy margins as the company matures.
Arguably the most interesting thing about Snowflake is its sustainable competitive advantages. For instance, it offers a pay-as-you-go model that shuns the subscriptions that SaaS stocks often covet. By allowing its customers to pay based on their storage needs and Snowflake Compute Credits used, it's offering a highly transparent and cost-effective operating model.
Even better, its platform is layered atop the most popular cloud infrastructure solutions, which makes the sharing of information seamless, regardless of storage provider.
Snowflake has some very big shoes to fill with its lofty valuation, but Wall Street believes the company can get it done.
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Datadog: Implied upside of 35%
Have I mentioned that Wall Street has a thing for SaaS stocks? In addition to Shopify and Snowflake, analysts believe that application monitoring solutions provider Datadog (DDOG -0.15%) could surge to $121 a share over the next year. This implies up to 35% upside in its shares.
Keeping with the theme, Datadog looks to benefit from businesses completely shifting their strategy in the wake of the pandemic. With employees working remotely, it's become more important than ever that businesses stay on top of key metrics, oversee critical applications, and fully understand the behavior of their customers. Datadog's cloud-based solutions do all of this for its clients.
What's been most impressive about Datadog is the company's ability to attract bigger clients. While a 46% increase in customers with at least $100,000 in annual recurring revenue (ARR) is nice, the "wow" number is the 94% increase in the number of customers generating at least $1 million in ARR. This is a big reason the company's sales shot 66% higher in 2020 to $603.5 million.
Similar to Snowflake, Datadog has a lot to prove with its lofty price-to-sales ratio. However, if it can continue to grow its sales by more than 30% annually, there's no reason Wall Street's price target isn't within reach.
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Coinbase: Implied upside of 56%
Finally, recent initial public offering Coinbase (COIN 2.60%) offers the highest perceived upside among these five fast-growing companies. Though there were only four price targets listed through this past weekend, a lofty target of $600 a share skewed the consensus up to $456 a share. This suggests Coinbase could gain 56% over the coming 12 months.
There's no doubt that Coinbase has benefited from the euphoria surrounding cryptocurrencies like Bitcoin and Ethereum. With both rallying to new highs this year, Coinbase recorded $1.8 billion in revenue in the first quarter. For some context, that's more revenue than it had generated in the previous 24 months combined!
However, unlike the other popular companies listed here, Coinbase's advantages look flimsy, at best. It runs the risk of competing crypto brokerages undercutting its fees, which could reduce its operating margins and growth rate dramatically over time.
Furthermore, its business model looks to be built upon euphoria rather than innovation. With most of its revenue coming from Bitcoin and Ethereum trading, it's worrisome to see what happens when the price of these key assets stops rising. In a two-year stretch where Bitcoin lost 80% of its value, Coinbase saw its revenue nearly get halved.
In sum, Wall Street may be bullish on Coinbase, but this Fool isn't.
