Market volatility has been called the price of admission for the higher returns that stocks offer relative to other assets. That doesn't make it easier to ride out a downturn. It's why many suggest keeping some cash available to take advantage when even the best companies are dropping sharply.
Right now, I'm buying more shares of Atlassian (TEAM -1.43%) and Inari Medical (NARI -0.21%). Even though investors expect a lot of growth, I think they'll deliver. Let's look at the advantages each company has, as well as how they've already been delivering profitable growth ever since going public.
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1. Atlassian
Companies use an average of 288 software applications. That creates silos across functions within an organization and even among members of small groups. Atlassian creates work management tools to solve the problem and deliver on its mission to unleash the potential in every team. It must know what it's doing. Internally, employees are 40% less likely to leave than the industry average and the company has been ranked as one of Fortune's 100 best places to work two years in a row.
Atlassian has succeeded by focusing on developers and letting products spread naturally as they collaborate with other functions inside an organization. It's been a winning strategy, garnering nearly 213,000 customers and more than 15 million users so far. The number of customers has already grown faster through the pandemic despite the fiscal year only being three-fourths done at last count.
| Fiscal Year Ending June 30 | Customers | Growth |
|---|---|---|
| 2021* | 213,000 | 22% |
| 2020 | 174,097 | 14% |
| 2019 | 152,727 | 21% |
| 2018 | 125,796 | NA |
Data Source: Atlassian. *As of March 31, 2021.
That organic growth has led to impressive user metrics, even though the company shunned creating a direct sales force. Trello, its customizable cloud-based Kanban boards, boasts more than 10 million monthly active users (MAU). That makes it the largest work management product on the market. Jira, the company's project management tool and largest revenue driver, has a relatively even split between its technical and non-technical users. That's important because it expands the addressable market. Management believes its current addressable market is $24 billion and growing. Altogether, it sees $126 billion in annual spend from the markets it serves.
The full suite of products has generated close to $2 billion in revenue over the past 12 months. For the quarter ending March 31, revenue was up 38%. That's been consistent. The top line has grown 38% on average over the previous three- and five-year periods. Unlike many other technology companies, that growth doesn't come at the cost of burning cash. Atlassian was cash flow positive even before going public in 2015. Since then, free cash flow -- what's left after running the business and investing for growth -- has outpaced revenue nearly 2-to-1.
TEAM Revenue (TTM) data by YCharts
Beyond growth and profitability, Atlassian possesses leadership willing to make hard choices for long-term gains. For one, it has stopped selling its data center product, instead only offering the cloud-based version. This will allow faster product iteration and deliver updates to customers more often. Another example is its partnership with Slack. In it, Atlassian agreed to exit the chat business, instead migrating its customers to its competitor. The pair have released nearly a dozen product integrations between them since. That isn't easy for a founder to do, and it's the kind of decision-making that lets me sleep easy buying shares of Atlassian even as the stock has fallen 14% from its high.
2. Inari Medical
Inari Medical went public near the end of May last year, and its stock price has more than doubled in a year. Investors are excited about its products to treat clots without expensive, risky drugs. Although hospitals' focus on the coronavirus limited Inari's access to potential customers last year, it still put up incredible growth. Revenue climbed 173% in 2020 to $139.7 million while net income jumped 2,200%. In what would seem to defy Wall Street logic, the company wasn't far from doubling sales yet turned a profit. What's more compelling than the numbers is why its products are being adopted so quickly.
The FlowTriever and ClotTriever devices remove blood clots and are easy to use. They replace risky drugs that require expensive stays in the intensive care unit. Those drugs, called thrombolytics, are currently the most common treatment even though they can cause severe bleeding, require multiple hospital stays, and can be very expensive. And that's when patients can get them. Up to half of patients are contraindicated, meaning there is some circumstance suggesting they shouldn't be treated with thrombolytics.
The devices target deep vein thrombosis (DVT) -- a condition where clots form in the leg -- and pulmonary embolism (PE) -- a clot that has traveled to the lung. Management estimates DVT and PE affect roughly 668,000 and 400,000 patients per year, respectively. Both have long-term impacts on a patient's lifestyle and PE is the third-leading cause of preventable deaths in hospitals. That's why a more effective, cheaper, safer treatment is proving so popular.
Inari kept up the torrid growth in the first quarter ending in March. Revenue grew 113% year over year and the company maintained its streak of posting a profit in each quarter since going public. With a transformational solution for more than a million patients per year, along with the rare combination of hyper-growth and profitability, gains could compound quickly. Despite the recent 32% decline, I'm happy to add shares to my portfolio.
