Ah, 2022. Just when COVID-19 begins to fade into the distance, inflation reaches a 40-year high, Russia invades Ukraine, and the major stock indexes enter correction territory. The Federal Reserve is now indicating as many as seven interest-rate hikes this year alone to combat inflation.
Lost in these gloomy headlines is the fact that many corporations have released spectacular results, are positioning themselves for the future, and could provide investors with outstanding long-term returns. Buy-and-hold investors might want to consider these three appealing companies.
1. CrowdStrike
Rumblings about potential cyberattacks have reached a fever pitch since the Russian invasion. The U.S. and European governments have warned businesses to be hypervigilant amid evolving intelligence.
But this is nothing new. Businesses large and small, crucial infrastructure, school systems, and other enterprises are constantly working to protect themselves against bad actors. This need has allowed CrowdStrike (CRWD -0.68%) to achieve massive growth in an ever-expanding total addressable market (TAM).
Source: Getty Images
CrowdStrike tackles its stated mission, "we stop breaches," through its cloud-based Falcon platform. The company provides endpoint security, cloud security, threat intelligence, and many other services. Endpoint and cloud security are becoming increasingly crucial for businesses as they embrace remote-work options and migrate systems to the cloud. Because of this, CrowdStike believes it will have a TAM worth $116 billion by 2025.
The company has seen massive growth in its number of customers and revenue over the last several years. CrowdStrike serves over half of Fortune 500 companies and 15 of the top 20 banks. Total customers reached 16,325 in fiscal 2022. This is a far cry from the 450 using its services in 2017, as shown below. Annual recurring revenue topped $1.7 billion in the fourth quarter of 2022, marking a 65% rise year over year.
Data source: CrowdStrike. Chart by author.
Despite a strong comeback over the last month, the stock currently trades about 25% down from its 52-week high. It still isn't cheap, with a market cap of over $50 billion on $1.5 billion in fiscal 2022 revenue. With that said, CrowdStike posted a gross margin of 76% based on generally accepted accounting principles (GAAP) in fiscal 2022 and a significant jump in non-GAAP (adjusted) income from operations. CrowdStrike stock has terrific long-term potential if the company continues on its current trajectory.
2. The Trade Desk
The way consumers receive television and media is changing, and the advertising market is changing along with it. Connected television (CTV), or television accessed over the internet, is growing. According to one study, more than 80% of households have at least one CTV device, and 39% of adults watch streaming content daily. Because of this, CTV advertising spending is skyrocketing.
More than 15,000 advertisers used CTV advertising on The Trade Desk's (TTD 3.35%) platform in 2021. The company's cloud-based platform enables advertisers to create, manage, and track digital ad campaigns across several formats like video, social media, and display.
Last year saw sales increase 43% to $1.2 billion. Also encouraging was the generation of almost $320 million in free cash flow and $500 million in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). This kind of performance allows the company to operate free of long-term debt, with $959 million in cash and equivalents and short-term investments on the balance sheet at the end of 2021.
The Trade Desk's stock has seen a nearly 25% drop thus far in 2022 and a 40% drop from its 52-week high. The price-to-sales ratio is now lower than it has been for most of the past year but still up from its pre-pandemic level.
3. InMode
InMode (INMD -0.06%) is an innovative medical technology company with a unique platform. Cosmetic surgery has several downsides, including long recovery times, scarring, general anesthesia, and (of course) cost. InMode's radio-frequency (RF) technology fills the treatment gap for those who want to make a cosmetic change like contouring or skin tightening without full-blown surgery. The technology can also be used for other minimally invasive procedures.
The company's stock has sold off like much of the growth-tech market in 2022 and is down nearly 40% year to date, but it is still up almost 20% over the past year.
InMode has something that many growing companies do not have: tremendous GAAP profitability. In 2021, the company posted $358 million in sales, a whopping 73% increase over 2020. Even better, net income in 2021 reached $165 million on a GAAP basis. That's right: InMode posted a GAAP net margin of over 45% for the year. Because of these margins, the company is free of long-term debt and has a tremendous balance of cash and short-term investments.
The stock trades at a price-to-earnings (P/E) ratio of just over 20, lower than it has traded since the market recovered from the pandemic. A $1 million share repurchase program has also been authorized, music to investors' ears. InMode's growth and profitability make it an attractive play for long-term investors.