Please ensure Javascript is enabled for purposes of website accessibility

2 Growth Stocks to Buy Right Now

By Trevor Jennewine – Updated Aug 3, 2021 at 2:03PM

Key Points

  • Lemonade is disrupting the insurance industry with big data and artificial intelligence.
  • Zoom recently acquired Five9, extending the scope of its unified communications platform.

Motley Fool Issues Rare “All In” Buy Alert

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

The future looks bright for both of these tech companies.

Lemonade (LMND 0.53%) and Zoom Video Communications (ZM -1.43%) have fallen 53% and 33%, respectively, from their 52-week highs. Those losses certainly sting in the short term, but there's a silver lining.

The future looks bright for both of these tech companies as they are gaining traction with consumers. More importantly, investors can now pick up a few shares at a discount. Here's why that looks like a smart move.

Investor using her smartphone.

Image source: Getty Images

1. Lemonade

Lemonade is disrupting the $5 trillion insurance industry. Instead of agents and actuaries, the company leans on big data and artificial intelligence to engage consumers, quantify risk, and run various parts of its business. In fact, Lemonade collects roughly 100 times more data than traditional insurance companies.

Why does that matter? Data is the name of the game when it comes to insurance coverage. Over time, Lemonade's advantage should allow it to underwrite policies more precisely and detect fraud more effectively—both of which should keep claims payments low. Put another way, Lemonade's gross loss ratio (i.e. the percent of premiums paid out in claims) should be lower than average, making its business more efficient than the traditional insurance company.

To add to that, by using AI-powered chatbots to sell policies and process claims, Lemonade needs just one employee per 1,700 customers, whereas typical insurance companies have one employee per 150 to 450 customers. That keeps Lemonade's payroll expenses low, driving further cost savings for the company.

Collectively, these advantages help Lemonade provide customers with a faster, cheaper experience. Not surprisingly, that has translated into strong demand.

Metric

Q1 2019 (TTM)

Q1 2021 (TTM)

CAGR

Customers

371,571

1,096,618

72%

Gross profit

$4.4 million

$22.1 million

124%

Data source: Lemonade SEC filings. TTM = trailing-12-months. CAGR = compound annual growth rate.

Looking ahead, Lemonade is well-positioned to maintain this momentum. The company recently announced Lemonade Car, an auto insurance product slated to launch in the near future. This boosts its addressable market to over $400 billion in the U.S. alone.

Moreover, current Lemonade customers already spend $1 billion on auto insurance each year (with other insurance companies). So by bundling homeowners and auto policies together, management believes the company can unlock tremendous value in the existing business, not to mention the additional customers this new product could draw.

That's why this growth stock looks like a smart buy right now.

2. Zoom Video Communications

Zoom needs little introduction. Last year Zoom achieved something that few companies ever manage: Its brand name became a verb. The company's communications platform saw widespread adoption during the pandemic, as employees and students used video chat to work and learn remotely.

In fact, Zoom's user based surged 470% in fiscal 2021 (ended Jan. 31, 2021), and that strength has continued into fiscal 2022. In the first quarter Zoom hit 1,999 customers that pay over $100,000 annually, up 160% from the prior year. And the company maintained a net expansion rate of over 130% for the 12th consecutive quarter, indicating a 30% uptick in average customer spend.

Not surprisingly, that momentum has translated into a mind-boggling financial performance. In fact, Zoom reached $1 billion in annual recurring revenue faster than any software-as-a-service company in history.

Metric

Q1 2020 (TTM)

Q1 2022 (TTM)

CAGR

Revenue

$392.4 million

$3.3 billion

189%

Free cash flow

$37.3 million

$1.6 billion

552%

Data source: Ycharts. TTM = trailing-12-months. CAGR = compound annual growth rate.

But the pandemic won't last forever. What will happen to Zoom when things go back to normal? Nothing -- I think this company will be just fine. Zoom has established itself as the market leader, surpassing Cisco's Webex in both total customers and unique users. And CEO Eric Yuan is a strong leader, as evidenced by his 97% approval rating on Glassdoor.

More importantly, I don't think the future of work and learning look like the past. Research from Gartner suggests that 48% of employees will work remotely at least part time after the pandemic, up from 30% before the pandemic. And only 25% of enterprise meetings will take place in person, down from 60% today. In both cases, that creates an opportunity for Zoom to disrupt traditional work and business travel.

Last but not least, Zoom recently made a bold acquisition. The company bought Five9, bringing its Contact-Center-as-a-Service (CCaaS) software in house. At $14.7 billion in stock, the acquisition was certainly pricey, but I like the initiative. This move extends the scope of Zoom's communications tools, adding another use case to its platform. It also adds $24 billion to the company's market opportunity, bringing the total to roughly $90 billion.

That's why now looks like a good time to buy this growth stock.

Trevor Jennewine owns shares of Lemonade, Inc. The Motley Fool owns shares of and recommends Five9, Lemonade, Inc., and Zoom Video Communications. 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

Zoom Video Communications Stock Quote
Zoom Video Communications
ZM
$70.57 (-1.43%) $-1.02
Lemonade, Inc. Stock Quote
Lemonade, Inc.
LMND
$19.06 (0.53%) $0.10
Cisco Systems Stock Quote
Cisco Systems
CSCO
$48.28 (0.42%) $0.20
Five9 Stock Quote
Five9
FIVN
$60.23 (-0.97%) $0.59

*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
351%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/29/2022.

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.