Finding hyper-growth stocks with reasonable share price volatility is not an easy task. But we can make some educated guesses based on historical trends in the stock market. Generally, companies with strong management teams, visionary founders, large target markets, improving economies of scale, and robust secular tailwinds have been the ones rewarding investors with handsome returns.
Globant (GLOB -1.81%) and Xpeng (XPEV 3.78%) are two stocks that seem to meet these criteria. Here's why they can be attractive picks for retail investors.
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1. Globant
With the global economy going digital at breakneck speed, companies increasingly depend on software development and IT consulting firms. Especially those with expertise in emerging technologies such as artificial intelligence, the Internet of Things (IoT), blockchain, cybersecurity, data analytics, and cloud computing. Argentina-based Globant is making rapid strides in this niche and has organized its offerings into distinct areas of expertise differentiated by industry and technology specialization. According to market research firm IDC, Globant was a global leader in customer experience improvement services in 2020.
In the third quarter (ended Sept. 30), Globant's revenue soared 65% year over year to $342 million. As of the end of the third quarter, the company had 1,018 customers including several blue-chip companies such as Coca-Cola, Unilever, and Petroleo Brasileiro. It has been quite successful with large clients, considering that 162 customers spent over $1 million on Globant's services in the 12 months ending Sept. 30. Thanks to its diversified customer base by industry, it has limited exposure to business concentration risk.
Globant is also enjoying significant cost benefits due to its global delivery model. In the third quarter, it earned 75% of its revenue in dollars. But 92% of its workforce is from developing countries with weaker currencies and cheaper labor. Robust demand, pricing power, and cost efficiencies have enabled Globant to maintain its profit margins, despite the increasing impact of inflation in the labor market.
It's a profitable company, with a strong balance sheet: $482.6 million in cash and hardly any debt at the end of the third quarter. The company has estimated its targeted digital services market to be worth $154.4 billion by 2022. With trailing-12-month revenue of just $1.15 billion, there is a long runway left for this company.
2. XPeng
Chinese electric vehicle (EV) company, XPeng has been in the news recently for all the right reasons. There's the launch of the P5 smart family sedan in September 2021, a new version of the advanced driver-assistance system including an autonomous city driving feature (XPilot 3.5), and ambitions to start mass-producing a flying car by 2024.
The company also reported 10,138 vehicle deliveries in October 2021, a year-over-year jump of 233% and the second consecutive month of over 10,000 deliveries. This is especially commendable in a month when the EV industry has been plagued with semiconductor shortages and supply chain constraints. And the company is targeting an even higher monthly vehicle delivery of 15,000 by the end of 2021.
The stellar October delivery number brought XPeng's third-quarter vehicle deliveries to a record 25,666, a year-over-year jump of 199.2%. This helped lift third-quarter revenue by 187% year over year to 5.72 billion yuan ($898 million). While the company still reports losses, it managed to bump up gross margins by 250 basis points sequentially to 14.4% with help of economies of scale and rising deliveries of the higher price P7 vehicle.
China is undoubtedly the fastest EV adopter in the world. With the country focused on replacing almost 20% of the new cars sold with EVs by 2025 and 50% by 2030, there is a huge runway ahead for a fast-growing company like XPeng. In the long run, the company aims to become a global automaker, with 50% of vehicle deliveries in international markets. It is targeting Norway and other European countries such as Denmark, Sweden, and the Netherlands. In October, the company launched a smart electric sedan, the P7, in Norway, the second model after the G3 smart SUV.
In November, the company also unveiled the G9, an SUV, at the Guangzhou International Automobile Exhibition, a model developed to meet the requirements of both Chinese and international markets. Geographic market diversification and the availability of vehicles at varying price points (about $23,500 to $62,500) are helping the company reduce revenue volatility and target different demographics.
A lack of an extensive charging network has been one of the major deterrents in EV adoption. To overcome customers' range anxiety, XPeng has focused on building a broad charging network. At the end of September, the company operated 439 branded supercharging stations across 121 cities and 1,648 free supercharging stations across 221 cities.
XPeng's advanced driver-assistance system, XPilot 3.0, is now seeing rapid momentum. The software was present in over 11,000 of the more than 50,000 P7 vehicles delivered as of Sept. 30. With the company making swift advances in driver-assistance and autonomous-driving technology, XPeng seems well-positioned to make a pathway to profitability and grab share in the EV market.
