The stock market is full of companies with innovative ideas, but there are also many businesses riding on previous success. Ironically, the world-changing companies are the ones on sale right now and present an investment opportunity. 

Two companies with the vision and product to change the future are Cloudflare (NET -0.29%) and Snowflake (SNOW 1.50%). Each operates in the technology field and has been beaten down 50% and 30%, respectively, from all-time highs. With fourth-quarter earnings looming ahead, is now the time to buy these two innovators?

Two engineers working on a data server.

Image source: Getty Images

Cloudflare

Cloudflare's mission is simple: "to build a better internet." It accomplishes this by providing two factors every customer wants: speed and security. By powering internet requests through its 250 data centers in more than 100 countries, Cloudflare can provide its customers unprecedented speed. No matter where a user is accessing a website from, Cloudflare routes the request through the closest data center.  Additonally, by running the website through Cloudflare's servers, businesses no longer have to purchase expensive networking equipment to handle the traffic. Instead, Cloudflare takes care of all the capacity a business needs.

On the security side, Cloudflare's servers protect websites and their visitors from multiple malicious attack forms. In fact, Cloudflare scored the highest possible in 15 different categories when its distributed denial-of-service (DDoS) attack-prevention solution was compared with other providers. It also prevents bots from content scraping and can secure proprietary application program interfaces (API).

What Cloudflare does may be complex, but understanding its financials is much simpler. Cloudflare has grown its revenue over the last five years at a 50% compound annual growth rate (CAGR) and continued that trend by increasing its revenue 51% year-over-year (YOY) during the third quarter. Customers also spent more during Q3 versus last year demonstrated by its 124% net revenue retention rate. A key metric to watch during Q4 earnings is how many large customers -- those spending more than $100k annually -- Cloudflare has. In Q3, it was 1,260, growing 71% over last year's quarter.

Despite its high growth, Cloudflare isn't profitable. When assessed from a generally accepted accounting principle (GAAP) standpoint, it lost $107.3 million in the third quarter, resulting in an abysmal -62% net income margin. This shouldn't concern investors right now though, because Cloudflare sees a massive $100 billion market opportunity emerging by 2024. Cloudflare has the technology to make a huge difference in how the internet works across the world, and investors would be wise to take advantage of the depressed stock price.

Snowflake

Companies often generate massive amounts of useful data but have problems storing and processing it. Snowflake's solutions assist with both these tasks. With its data-lake offering, companies can store data across multiple clouds and then access all information through one program. With this solution, businesses can avoid getting locked into unreasonable contracts by cloud providers, as they can just migrate to another platform if issues arise.

Snowflake can feed semi-unstructured data into data pipelines, freeing up engineers to perform more analysis rather than getting data into the correct format. It also speeds up processes, giving businesses real-time insights rather than old information. Genuine Parts -- the owner of NAPA Auto Parts -- utilized Snowflake's solution to provide inventory updates to on-premise systems for its multimillion SKU (stock-keeping unit) part catalog every nine minutes, instead of 24 hours. If a company has data, Snowflake has a solution to help manage and utilize it.

Data being analyzed on a laptop.

Image source: Getty Images

The growth Snowflake reported during Q3 was unbelievable. Revenue grew 110% YOY to $312.5 million, and remaining performance obligations rose 94% to $1.8 billion. Even more impressive was its net retention rate of 173% -- meaning for every dollar a customer spent during last year's quarter, it spent $1.73 this quarter. Because Snowflake is consumption-based rather than subscription-based, the retention rate gives investors key insights into how much more customers are using it.

Snowflake had 148 customers who spent more than $1 million over the last twelve months; investors must watch this metric along with the retention rate during Q4 results to determine how Snowflake is doing. Management is projecting about 95% revenue growth in Q4 but could easily beat this number if Snowflake signed a big contract during the end-of-the-year spending spree some businesses embark on.

A final word

Both Cloudfare and Snowflake are best in class and have huge growth prospects ahead. As a result, each is valued highly.

SNOW PS Ratio Chart

SNOW PS Ratio data by YCharts.

Even though each has come down from its valuation peak, 73 and 50 times sales are not cheap. As a result, wild valuation swings may occur and investors must endure constant market commentary calling these businesses overvalued -- which they very well could be. By playing the long game, investors are buying the stocks for an expensive price now in exchange for future growth.

If investors can handle these challenges, the future business prospects for both are undeniable. It could be wise to take advantage of the market's sale prices and purchase two of the most innovative companies on the market today.